Investors are anticipating a 60% chance of a BoJ rate hike to 0.5% after last week�s strong domestic growth data. But market�s sentiment is that BoJ could come under political pressure not to raise rates. Japanese politicians have said it is up to the BoJ to decide on policy, but Vice-finance Minister Hideto Fujii declined to comment it the Government will request a delay of a policy decision until the next meeting if the BoJ propose a rate hike tomorrow…
Last week weaker than expected US data have renewed talk of a possible US interest rate cut in coming months. Investors are expecting the Fed to keep rates steady at its March meeting at 5.25% and are talking about a chance of a June rate cut.
News and Events:
The Yen fell against the Euro and the Dollar on Monday, eroding last week�s gains as expectations grew that a possible Bank of Japan interest rate rise this week would not change the Yen�s appeal as a funding currency. Investors are anticipating a 60% chance of a BoJ rate hike to 0.5% after last week�s strong domestic growth data. But speculation is leading the market�s sentiment that BoJ could come under political pressure not to raise rates. Japanese politicians have said it is up to the BoJ to decide on policy, but Vice-finance Minister Hideto Fujii declined to comment on Monday on what the Government would do if the BoJ propose a rate hike tomorrow. The Government can request a delay of a policy decision until the next meeting, although the BoJ can disregard that.
With much of Asia closed for Chinese New Year celebrations, and the US marking the Presidents� Day holiday; currencies were set to remain in tight ranges ahead of the BoJ rate decision and US inflation data on Wednesday. Analysts believed that a 25bp rate hike will not make investors to close their Carry-Trades; where market participants borrow in the Japanese Currency to invest in higher-yielding assets.
The Dollar fell almost 1.9% against the Yen last week; its worst weekly slide in nine months after some weak economics data and comments from Federal Reserve Chairman Ben Bernanke that US inflation was starting to cool. Weaker than expected US data have renewed talk of a possible interest rate cut in coming months! Investors are expecting the Fed to keep rates steady at its March meeting at 5.25% and are talking about a chance of a June rate cut. UsdJpy was up 0.23% at 119.71 while EurJpy was also firmer at 157.43 +0.34%.
Today’s Key Issues:
CHF 8:15 GMT: January Producer & Import Prices expected -0.1% vs 0% (MoM) and 2.3% vs 2.6% (YoY)
EURO 9:00 GMT: European Central Bank�s Smaghi speaks in Frankfurt
GB 9:30 GMT: January Public Finances expected -�22B vs -�13.4B, Pubic Sector Net Borrowing expected -�10B vs �7.2B, M4 Sterling Lending expected �12B vs �10.9B, M4 Money Supply January expected 0.7% vs 0.9% (MoM) and 12.7% vs 12.8% (YoY)
CAD 12:00 GMT: January Consumer Price Index expected 0.1% vs 0.2% (MoM) and 1.1% vs 1.6% (YoY)
CAD 12:00 GMT: Bank of Canada Consumer Price Index Core expected 0.1% vs -0.2% (MoM) and 2.1% vs 2% (YoY)
CAD 13:30 GMT: January Leading Indicators expected 0.4% vs 0.3%
USD 15:30 GMT: Federal Reserve�s Bies speaks at Duke University
AUD 23:00 GMT: RBA Governor Stevens testifies to Parliamentary Committee
The Risk Today:
EurUsd has tested resistance at 1.3176 (61.8% retracement of the 1.3268 to 1.2865 decline) which could open the way towards 1.3290. Initial support lies at 1.3095 last Friday low, but only a break of the 1.2900 would jeopardize the potential for a move above 1.3176 and toward the 1.3298 early January high.
GbpUsd has been range bound for the past couple of weeks between the 1.9750 February high and the 1.9403 February last week low. 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 has reversed recent weak trend and is heading to 119.90. Further advance would leave the way open to 121 and even higher to 122.20. But unsuccessful break of 119.90 would keep the recent weakness active and may expose 119.23 (38.2% retracement of the 114.43-122.20 rally). Next support is 118 pivot point. 119.90 marks now initial resistance.
UsdChf maintains a bearish tone following the recent break of 1.2376 former support, confirming the head-and-shoulders top. Further weakness below the 1.2376 will open the door to 1.2309 (38.2% retracement of 1.1881-1.2574 advance). The next important support is the 1.2260. Initial resistance is at 1.2412.
Resistance and Support: