JPY sinks as BoJ fails to tweak monetary policy

The USD tended to be on the rise against its counterparts, yesterday and during today’s Asian session, yet the bullish tendencies of the greenback seem to remain unconvincing for the time being. We expect after a long pause, the high-impact US financial releases due out today to increase volatility for the greenback and in the coming days, fundamentals may take a back seat in determining the market direction. We would like to draw the attention of our readers to the NY Fed Manufacturing index for January, which was released yesterday and dropped sharply deeper into the negatives, instead of improving, marking a contraction of economic activity for the wider NY area. At the same time, we also note that a number of Fed policymakers are scheduled to make statements that could sway the market’s opinion. US Stockmarkets, sent mixed signals yesterday as a number of companies missed their targets, especially regarding revenue and its characteristic that Goldman Sachs reported lower earnings and revenue for the last quarter of the past year. Such results would be understandable also due to the Fed’s monetary policy tightening and could act as a warning for the markets to lower their expectations.

Should the reports due out in the following days continue to be in a sea of red prints we may see the market turning more cautious and favoring less risky assets while US indexes could start dropping. In the FX market the highlight of the day yesterday was the weakening of JPY during the late Asian session today as BoJ failed to tweak its ultra-loose monetary policy as was expected by a number of market participants after December’s tweak of the Yield Curve Control policy. The bank maintained its interest rate unchanged at -0.10% and in its mentioned that the target rate for 10-year Japanese Government Bonds remains unchanged at 0% with a tolerance margin of 0.50% to either side, keeping its settings unchanged in a unanimous vote. The release brought BoJ’s dovishness in direct contrast to the market expectations sinking JPY and we would like to highlight BoJ Governor Kuroda’s comments that the bank will not hesitate to ease its monetary policy even further should it be necessary. We expect BoJ’s dovishness to weaken JPY further as monetary outlook differentials widen.

USD/JPY rallied during today’s Asian session, testing the 131.40 (R1) resistance line. We tend to maintain a bullish outlook for the pair, yet also note that there is a relative stabilization of the pair. Should the bulls maintain control, we may see USD/JPY breaking the 131.40 (R1) line and aim for the 134.80 (R2) level. Should the bears take over, USD/JPY could break the 128.60 (S1) support line and aim for the 126.50 (S2) level.

AUD/USD edged higher yesterday testing the 0.7010 (R1) resistance line. We tend to maintain a bullish outlook for the pair as the RSI indicator remains at rather high levels. Should the buying interest be expressed AUD/USD could break the 0.7010 (R1) resistance line and aim for the 0.7125 (R2) level. Should the bears take over, we may see the pair reversing course and breaking the 0.6900 (S1) support line, aiming even lower.

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Today in the European session we note the release of UK’s CPI rates for December, as well as Eurozone’s final HICP rate for the same month. On the monetary front, we note that ECB’s De Galhau and Schnabel are scheduled to speak. In the American session, we get from the US the PPI rates, the retail sales growth rate and the industrial production growth rate all being for December, while from Canada we get the producer prices growth rate for the same month. Oil traders on the other hand, may be more interested in the release of the weekly API crude oil inventories figure later on. On the monetary front we note that Atlanta Fed President Bostic, St. Louis Fed President Bullard, Kansas Fed President George, Philadelphia Fed President Harker and Dallas Fed President Logan are scheduled to speak. During tomorrow’s Asian session, we note Japan’s December trade data and Australia’s employment data for the same month.