Week in FX Asia – Bank of Japan Dissapoints Markets with Inaction Yen Rises | OANDA Forex Blog


 

This week the Bank of Japan found out just how harsh and fickle a mistress the market can be. The BoJ was the darling of the market and the shining example of how a central bank should intervene. Tuesday Governor Haruhiko Kuroda and the Japanese currency suffered the brunt of the market’s criticism for their lack of action. The currency rose to 96 and has continued to rise as the week progressed. There were expectations that the BoJ would increase its monetary stimulus.

Comments from the influential Mr. Yen summed up the feeling around Prime Minister Shinzo Abe’s third arrow of reform. Eisuke Sakakibara is pessimistic given the proximity of elections. Abe can’t introduce new reforms until fall to avoid compromising the results of the elections. Abe’s bold statements and follow through by Kuroda was seen as the one-two punch needed to get Japan back on track, but the expectation was that they would not stop there.

Sakakibara does not expect reforms before or after the election and adds his voice to the critics of Abe’s third arrow of reform as the first arrow of BoJ intervention is lacking in long-lasting impact.

Next week Japan will continue to be part of a G8 meeting where there could be rumblings of currency intervention. Although with the current state of the Yen this is less likely as the weakening could be unsustainable. The G8 might have suspected this from the start. Industrial production indicators will be released as well as foreign investment which will give insight on how well Abenomics is working on the real economy and investment.



WEEK AHEAD

* AUD RBA Meeting’s Minutes
* GBP Core Consumer Price Index
* GBP BOE Inflation Letter
* USD Consumer Price Index
* GBP Bank of England Minutes
* USD Fed Interest Rate Decision
* USD FOMC Economic Projections
* USD Fed’s Monetary Policy Statement and press conference
* EUR Producer Price Index
* CHF SNB Interest Rate Decision
* BOE Bank of England Minutes
* CAD Bank of Canada Consumer Price Index

Week in FX Asia – Bank of Japan Dissapoints Markets with Inaction Yen Rises | OANDA Forex Blog

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Week in FX Asia – Bank of Japan Doubles Bond Buying Weakens Yen


 

The Bank of Japan (BoJ) captured the attention of the foreign exchange world last week when it started to live up to the expectations of the market. After much anticipation, and lots of preceding rhetoric, Governor Haruhiko Kuroda announced the BoJ’s plan to double its bond buying efforts to reach the 2% inflation target in the allotted two-year window. It was his comments on Prime Minister Shinzo Abe’s inflation goals while still at the Asian Development Bank that might have won him the top job at the Japanese central bank. Earlier this week, the program kicked into gear and the JPY lost 4% versus the USD and 5% versus the GBP. The main beneficiaries have been Japan’s exporters and holders of Japanese stocks with the Nikkei Index reaching new highs on the value of the yen.

The decision has not been without its critics and some, such as George Soros, cautioned that the fall in the yen could be “an avalanche” that the BoJ could not stop if the Japanese people start to sell the currency. China and South Korea remain critical of the move, branding it a currency war before the Group of Twenty meeting last February. This week, the negative criticism persisted, but the words used were “monetary blackmail” instead of “currency war”. Those ugly words have not been uttered since the Group of Seven made it clear that as long as Japan’s monetary easing means are used for domestic aims, it does not imply unfair currency manipulation.



WEEK AHEAD

* CNY Real GDP
* AUD RBA Policy Meeting Minutes
* GBP Consumer Price Index
* EUR Euro-Zone Consumer Price Index
* EUR German ZEW Survey (Economic Sentiment)
* USD Consumer Price Index
* NZD Consumer Prices Index
* GBP Bank of England Minutes
* CAD Bank of Canada Rate Decision
* USD U.S. Federal Reserve Releases Beige Book
* CAD Consumer Price Index

Week in FX Asia – Bank of Japan Doubles Bond Buying Weakens Yen | OANDA Forex Blog

Week in FX Americas – When Will The Loonie Begin Its Real ‘Fall From Grace’?


 

Why is the CAD not any lower? Gold is off $60, crude is down $3 and Friday’s US data disappointed. As per usual, for an uninteresting currency that has been trading in a contained range so far this year, it is not surprising to witness a delayed reaction. The market should expect the loonie bears to come out of hibernation and finally want to sell some of their CAD dollars.

The currency bears will point to Gold’s long-term support levels been broken – there is danger that this move lower continues. The next real level of support for the yellow metal is around the $1475 area. It will be very interesting to see how the commodity bulls will react first thing next week.

There was no real news that sparked the Friday afternoon gold move lower. It feels like the commodity bulls finally lost interest and threw in the towel. Prudently, we should expect more investors to step aside so as to wait and see how far this market shake out progresses. Many have to be wondering what the logic is behind this move especially with central banks globally, and specifically Japan, ramping up the money printing.

With the lack of domestic developments, the CAD remains beholding to external headlines. With domestic order books remaining relatively thin topside, prices continue to find better bids on dips for now – however the game plan could change Sunday night.



WEEK AHEAD

* CNY Real GDP
* AUD RBA Policy Meeting Minutes
* GBP Consumer Price Index
* EUR Euro-Zone Consumer Price Index
* EUR German ZEW Survey (Economic Sentiment)
* USD Consumer Price Index
* NZD Consumer Prices Index
* GBP Bank of England Minutes
* CAD Bank of Canada Rate Decision
* USD U.S. Federal Reserve Releases Beige Book
* CAD Consumer Price Index

Week in FX Americas – When Will The Loonie Begin Its Real ‘Fall From Grace’? | OANDA Forex Blog

Week in FX Europe – EUR/JPY’s 12-Big Figure Move Dominates EUR demand


 

The EUR’s direction this week should have been influenced more by Euro fundamentals – but it was not. The 17-member single currency has ended up being pushed and pulled by a screaming yen that happens to be supported by the BoJ’s aggressive monetary easing program. In hindsight, this week’s asset and forex moves have more to do with the markets anticipation of what the Japanese investor will be doing and not what they are actually doing.

The EUR reached its “prudent” breaking point on Friday. This months EUR/JPY 12-big figure move beckoned long positions to take some profit off the table – with JGB yields rising instead of falling post BoJ is undermining this one directional trade. A healthy trade requires some breathing space and by booking profits for whatever reason – JGB’s getting slammed, headlines on Cyprus asking for more money or Italy needing to raise +EUR60-billion in more funding – that instigates an “orderly retreat” only proves the ‘worth’ in that overall trade.

It is a tad surprising that weaker US retail sales data and consumer sentiment did not produce more dollar buying against the EUR. The market seems comfortable buying EUR’s on dips, despite the daily technicals looking overbought. With not decent sign of a turnaround just yet, buying dips “safety in numbers” remains the number one course of action.

Next week it should be a quiet start to the week with no data from the UK or elsewhere in the Eurozone. There are no auction to even speak of, which should leave investors to ponder over what was said and not said at the Euro-finance ministers meeting in Dublin and possible event risk from North Korea.



WEEK AHEAD

* CNY Real GDP
* AUD RBA Policy Meeting Minutes
* GBP Consumer Price Index
* EUR Euro-Zone Consumer Price Index
* EUR German ZEW Survey (Economic Sentiment)
* USD Consumer Price Index
* NZD Consumer Prices Index
* GBP Bank of England Minutes
* CAD Bank of Canada Rate Decision
* USD U.S. Federal Reserve Releases Beige Book
* CAD Consumer Price Index

Week in FX Europe – EUR/JPY’s 12-Big Figure Move Dominates EUR demand | OANDA Forex Blog

Week in FX Americas – Boring Loonie Continues A Sideways Chop | OANDA Forex Blog


 

With no North American data to bully the loonie on Friday, the interest and commodity sensitive currency ended the week trading rudderless in another tight boring range. Many investors have shifted their attention to the euro-zone developments. Last Thursday, the 2013-14 Canadian budget was delivered amid little fanfare and with no impact on the CAD. The only thing of note was the reaffirming of Canada’s Triple-A credit rating, a recognized seal that is quickly becoming a rare attribute bestowed on developed countries.

After last weeks employment numbers, many investors were positioned and expected some modest bullishness from the currency. In hindsight, domestic macro drivers have been too mixed to give the loonie clear direction. Several analysts believe the divergence between Canada’s services and manufacturing sector will end up being temporary. With Canadian households remaining cash rich and a banking sector amongst the strongest globally, certainly favors the currency. Once the unknown Cypriot variable is played out and remains contained, the loonie should finally break out of its current range. For now, the sideways chop continues with range trading being the best strategy.



WEEK AHEAD

* USD Fed’s Bernanke Speech
* USD Durable Goods Orders
* USD Consumer Confidence
* GBP Gross Domestic Product
* CAD Bank of Canada Consumer Price Index Core
* EUR Unemployment Change
* USD Gross Domestic Product
* USD Reuters/Michigan Consumer Sentiment Index

Week in FX Americas – Boring Loonie Continues A Sideways Chop | OANDA Forex Blog

Week in FX Europe – Another Last Minute Houdini Act from The ECB? | OANDA Forex Blog


 

Despite concerns about Cyprus and an unexpected drop in this month’s German business confidence numbers, the 17-member single currency is rounding off the week trading higher against most of its major trading partners. Many participants still expect the ECB to perform another one of its Houdini acts. Capital Markets remain composed; most likely due to the fact that investors have gotten used to the last minute Euro-solutions. They are clinging onto hope that Cyprus will get a deal done over the next three-days.

In a worst-case scenario – Cyprus having to leave the Euro-zone – some investors are holding on to the belief that the ‘buck’ stops with the island country and no widespread contagion will actually occur. While traders are taking profit on the short EUR positions ahead of the weekend they are also selling their long winning dollar positions accumulated during this quarter. If by Monday and things do actually go “pear-shaped” for the market, any EUR weakness may only be brief as the ECB will be quick to react to calm the markets through their OMT or the ELA programs.



WEEK AHEAD

* USD Fed’s Bernanke Speech
* USD Durable Goods Orders
* USD Consumer Confidence
* GBP Gross Domestic Product
* CAD Bank of Canada Consumer Price Index Core
* EUR Unemployment Change
* USD Gross Domestic Product
* USD Reuters/Michigan Consumer Sentiment Index

Week in FX Europe – Another Last Minute Houdini Act from The ECB? | OANDA Forex Blog

Week in FX Asia – Is Future Yen Weakness A Myth? | OANDA Forex Blog


 

Certainly a concern to the lemming bear Yen trades out there is that USD/JPY price action has very much disappointed after the BoJ leadership sailed through Japan’s parliament. Buying USD/JPY has been the “no brainer trade” to date, fueled by better than anticipated US fundamental data and supported by the expected reflation BoJ efforts next month. Even this week’s US Retail Sales and claims headline is supporting the dollar, more so now that US yields are on the move. One risk is that US yields could eventually undermine the “long-tooth” equity rally. Rumors of an unscheduled easing measure right after Kuroda takes office has taken the Yen in the direction Japanese PM Abe has pointed all along. Abe’s aide talk about 98-100.0 being “fair-value” levels should become self-fulfilling.

The Bank of Japan will be under new management from March 20th, which is widely expected to lead to the implementation of more aggressive monetary policy, perhaps as soon as April. It looks like this market wants to sit on their hands until then. There are market suggestions that an unscheduled Bank of Japan policy meeting may take place immediately after the new BoJ governor takes office on March 20th. This move would obviously allow time for BoJ staff to study “the practicalities of any new easing proposals before a final decision can be made at the scheduled meeting on April 3-4.” Until then USD/JPY can only do one thing and that’s stay relatively bid. One wonders now how much longer other Asian central banks can go without reacting to the weak Yen threat?

The loudest section of the forex market is trying to bully the masses into believing that holding the dollar is the best chance of a winning hand. More analysts are now expecting the ‘mighty’ buck to sharply outperform GBY, JPY and AUD and some of the other noted G10 members, thanks to higher US yields and an improved US balance sheet. But, where is domestic Japan? The Yen weakness started in September and gathered momentum mid-November when the full dollar bullish breakout above 81.0 occurred. Risk appetite was strong back in September due to Draghi’s OMT and also QE3 announcement and by November Shinzo Abe arrived on the scene and Abenomics began. To date this has been predominately an offshore currency move. Where is domestic Japan? The Japanese housewife has yet to be sold on the weak yen story. They are needed to fulfill PM Abe’s dream.



WEEK AHEAD

* AUD RBA Policy Meeting Minutes
* GBP Consumer Price Index
* EUR German ZEW Survey (Economic Sentiment)
* GBP U.K. Chancellor Osborne Presents 2013 Budget to Parliament
* EUR German Producer Prices
* GBP Bank of England Minutes
* GBP Jobless Claims Change
* USD Federal Open Market Committee Rate Decision
* NZD Gross Domestic Product

Week in FX Asia – Is Future Yen Weakness A Myth? | OANDA Forex Blog