Japan Services Producer Prices Rise 3.2% in June, Supporting BOJ Rate Hike Expectations 
BOJ Holds Rates at 1% as Inflation Outlook Eases, October Rate Hike Still Possible 
South Korea Raises Interest Rates to 2.75% as Inflation and Weak Won Drive Tightening 
Fed Holds Interest Rates Steady as Kevin Warsh Says Rising Treasury Yields Tighten Financial Conditions 
ECB's Kocher Says No Inflation Spillover Yet From Iran Conflict, Warns Risks Remain 
We have been arguing that normalization of monetary policies will be driving markets for years to come. We expect the Fed to lead the way. Other G10 central banks are likely to continue moving to the opposite direction for a while, and then start tightening after the Fed's tightening cycle has advanced.
Even if the Fed delays hiking rates, it will be the first central bank to do so, in our view. We believe that the ECB, at the other extreme, will have to ease policies further.
We expect the ECB to miss its inflation target in the months ahead and start talking about QE2, in the form of extending QE after September next year. The timing of the Fed rate hike and the ECB seriously considering QE2 will determine the EUR/USD path, but the final outcome is a weaker EUR/USD, in our view.
We like selling the EUR/USD rallies when we get them, as the path will continue being volatile. We also note that the Eurozone's unemployment rate is the highest in G10 compared with pre-crisis levels, and that the Eurozone also has the largest output gap. This suggests that EUR/USD could weaken more and remain weak in the medium term.
