BoJ’s interest rate decision in focus

The USD edged a bit higher against its counterparts yesterday, however, bearish tendencies seem to remain present for the greenback. It should be noted that the slight strengthening of the greenback tended to push gold prices lower, given the denomination of the precious metal in USD and the negative correlation of the two trading instruments. On the other hand, US stock markets seem to be about to restart their engines after the long weekend and earnings releases from major US banks are about to continue with the reports of Goldman Sachs and Morgan Stanley being due out. It should be noted that some large US banks had allready released their earnings reports on Friday, with JPMorgan and Bank of America surpassing market expectations, while Citigroup missed its EPS target and Wells Fargo its revenue target, yet the sensation was the warnings which were issued by large banks about the outlook for the US economy. In the FX market, JPY comes under the market‘s focus as BoJ is to release its interest rate decision during  tomorrow‘s Asian session.

The bank is expected to remain on hold keeping the interest at -0.10% and currently, JPY OIS provide a 71.65% probability for such a scenario to materialize, with the rest implying that a 10-basis points rate hike is also possible. We expect that should the bank proceed with any tightening it may focus primarily on the YCC, rather than the interest rate as such. Also, some adjustment to the amount of bonds the bank is buying could be expected as the unlimited amount mentioned in the previous accompanying statement may be setting the bank in direct contrast with the markets. Overall, we may see a subtle yet more concrete alteration of the bank’s ultra-loose monetary policy which could support JPY with a more hawkish shift possibly coming after April when current BoJ Governor Kuroda steps down.  Should the bank fail to proceed with any form of tightening, we may see JPY weakening. North of the US border the CAD tended to remain rather stable against the USD, with Canada’s CPI rates being due out today and should the rates accelerate we may see the CAD getting some support as the release could intensify the pressure on BoC for more rate hikes.

USD/JPY rose to break the 128.60 (S1) resistance line, now turned to support and seemed to stabilize somewhat. For the time being we tend to maintain a bias for the sideways motion to continue, yet BoJ’s interest rate decision could alter the pair’s direction. Should the bulls take over, we may see the pair aiming if not breaking the 131.40 (R1) resistance line. Should the bears take over, we may see the pair breaking the 128.60 (S1) support line and take aim if not breach the 126.50 (S2) support level.

USD/CAD also edged a bit higher, yet overall remained within the boundaries of the 1.3465 (R1) and the 1.3335 (S1) levels, maintaining its sideways motion. Given the pair’s current sideways motion and the RSI indicator which is at the reading of 50 we tend to maintain our sideways motion bias. Should a buying interest be expressed by the market we may see USD/CAD breaking the 1.3465 (R1) resistance base thus paving the way for the 1.3570 (R2) resistance level. On the other hand, should sellers be in charge of the pair’s direction, we may see the pair breaking the 1.3335 (S1) support line and aim for the 1.3230 (S2) support level.    

Other highlights for the day:

Today in the European session, we note the release of Germany’s final HICP rates for December, UK’s employment data for November, Germany’s ZEW indicators for January and later on New Zealand’s biweekly milk auctions figure. On the monetary front please note that ECB’s board member Bollo is scheduled to speak. Just before the Asian session start we get New Zealand’s electronic card sales growth rate for December. On the monetary front please note that NY Fed President Williams is scheduled to speak. During Wednesday’s Asian session, besides the highlight which is to be BoJ’s interest rate decision we also get Japan’s Machinery orders growth rate for November.  

USD/JPY H4 Chart

Support: 128.60 (S1), 126.50 (S2), 124.00 (S3)

Resistance: 131.40 (R1), 134.80 (R2), 138.10 (R3)

USD/CAD H4 Chart

Support: 1.3335 (S1), 1.3230 (S2), 1.3140 (S3)

Resistance: 1.3465 (R1), 1.3570 (R2), 1.3685 (R3)

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