Bank of Japan raised interest rates for the first time since July but said further increases would be gradual. Even with this rate hike to 0.5%, the highest in a decade, Japanese interest rates are the lowest in the industrialized world. Investors doubt the BoJ could raise again soon, especially with core Japanese inflation barely rising. BoJ Governor Toshihiko Fukui said in a news conference that the Japanese Central Bank does not have specific schedules in mind for futures hikes…
Headline US CPI increased by 0.2% as energy prices fell by 1.5%. Analysts think the US economic scenario may remain with moderate inflation pressures while economic growth slows gently; this would likely allow the Fed to keep rates steady at 5.25%.
News and Events:
The Yen fell against the Dollar and the Euro for a fourth straight day on Wednesday after the Bank of Japan raised interest rates for the first time since July but said further increases would be gradual. Even with this rate hike to 0.5%, the highest in a decade, Japanese interest rates are the lowest in the industrialized world. Investors doubt the BoJ could raise again soon, especially with core Japanese inflation barely rising. BoJ Governor Toshihiko Fukui said in a news conference that the Japanese Central Bank does not have specific schedules in mind for futures hikes. That left investors still willing to fund Carry-trades using Yen; borrowing in Japanese low yielding currency and then selling the Yen to buy higher-yielding currencies such as Euro, Dollar or Sterling. EurJpy rose to 158.92 +0.71% after climbing to 159.05, the highest in a week.
The Dollar rose briefly after the US Consumer Price Index for January rose more than expected despite a dip in energy prices, as medical costs jumped. The slightly bigger than expected 0.3% m/m increase in core CPI in January (consensus was 0.2%) would appear to contradict the Fed’s line that core inflation is moderating gradually. The annual rate edged back up to 2.7%, from 2.6%. Headline CPI increased by 0.2% as energy prices fell by 1.5%. Analysts think the US economic scenario may remain with moderate inflation pressures while economic growth slows gently; this would likely allow the Fed to keep rates steady at 5.25%. EurUsd was fairly unchanged at 1.3138 and GbpUsd fell -0.14% to 1.9534. UsdJpy gained 0.78% to 120.97, its highest move in a week. In other trading, Reserve Bank of Australia Governor said rates were more likely to rise than fall in the month ahead. His comment boosted the AUD to one-month high versus the Yen and the US Dollar. AudJpy gained 1.16% to 95.65.Australia�s rates are already at 6.25%, the second highest in the industrialized world after New Zealand.
Today’s Key Issues:
GB 9:30 GMT: 4Q Total Business Investment expected 0.8% to 2.5% vs 3.1% (QoQ) and 7.2% to 10.1% vs 8.2% (YoY)
Euro 10:00 GMT: December Industrial New Orders expected -0.7% to +3% vs 1.4% (MoM)
CAD 13:30 GMT: 4Q Corporate Profits expected 2.5% vs 2.8%
US 13:30 GMT: February 17th Initial Jobless Claims expected 325k vs 357k
CAD 18:35 GTM: Bank of Canada Deputy Governor Kennedy speaks on adjusting to economic change
JPN 23:50 GMT: December All industry Activity index expected -0.3% to 0% vs -0.2%
The Risk Today:
EurUsd is consolidating recent gains, holding above support at last Friday’s 1.3095 low. Only a move below 1.3050 would offset the actual upward tone. On the uptrend, only a break of 1.3176 (61.8% retracement of the 1.3268 to 1.2865 decline) would open the way towards 1.3290.
GbpUsd remains in 1.9403 � 1.9750 trading for the past couple of weeks. Only a breakout from this range would mark the next key directional trend. A break of 1.9750 resistance (61.8% retracement of the 1.9917-1.9482 decline) is required to confirm the return of the bull trend.
UsdJpy jumped over 119.90 and 121 resistances. Expect further upside towards resistance zone near the 121.30 to 121.60 area. It would take a break of the Wednesday’s 119.71 reaction low to offset upward trend in the near term. 119.90 remains the key level.
UsdChf continued to recover from 1.2312 Tuesday’s low. From now, a sustained move above 1.2411 (23.6% retracement of 1.1881 to 1.2575 advance) would put the underlying bearish tone on hold. On the downside, we’ll focus on 1.2376 former resistance where a break would signal a return of the bear trend for a run below 1.2312 and then the 1.2228 (50% retracement of 1.1881 to 1.2575 advance).
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Resistance and Support:
