JPY advances ahead of Bank of Japan

• USD remains soft after Bernanke indicated that the door was open for more stimulus if necessary at yesterday’s press conference. Markets seemed to focus on this despite the upward revisions to the growth outlook and downward estimates of the unemployment rate this year. Weekly initial jobless claims today came in higher than consensus with a print of 388k from the prior 389k which was revised higher from 386k. The 4-week moving average in initial claims rose by over 6k for the third straight week – not an encouraging sign for the labor market. With employment struggling to gain traction and mixed interpretations of yesterday’s FOMC meeting, markets are likely to focus on data surprises and price action will be impacted by QE3 speculation as it is still on the table.

UST yields are lower across the curve with the 10-year Treasury yields down nearly -5bps to 1.93% and equities are in the red across the board at time of writing in Europe and relatively flat in the U.S. The dollar index is testing the 79.00 figure and below that sees the April lows of around 78.65. Due out at 1000ET are March pending home sales.

• EUR is relatively flat against the majors. The euro is holding its ground despite widening sovereign yield spreads, weaker than expected confidence indicators out of the Euro zone and Italy, and slowing inflation in Germany. April Euro zone consumer confidence fell to -19.9 (cons. -19.8), Italian business confidence surprisingly dropped to 89.5 (cons. 92.1, prior 91.1), and Germany’s CPI slowed as expected to 2.0% y/y (prior 2.1%) and 0.1% m/m (prior 0.3%). Spanish PM Rajoy said that Spain’s ability to fund itself is at risk and that budget cuts are necessary due to an unmanageable deficit. EUR/USD is steady above the 1.32 figure around where the 55-day SMA resides.

• CAD broke out of its range with USD/CAD making new lows for the year. There has been little follow through so far with USD/CAD currently trading around the 0.9835 level after finding short term support above the 0.98 figure. Bank of Canada Governor Carney testified before a parliamentary committee and maintained his hawkish tone, reiterating that higher rates may become appropriate. The comments helped to support the Loonie as does higher oil prices. WTI crude is marginally higher by about +0.03% at time of writing. There is no economic data of note out of Canada today.

• JPY is outperforming ahead of tomorrow’s Bank of Japan policy announcement. Data released overnight indicated that Japanese investors sold ¥1170B of foreign bonds and the Feb. all industry activity index fell by less than forecast with a decline of -0.1% (cons. -0.2%, prior -1.0%). U.S. Treasury yields are broadly lower which is weighing on the USD/JPY. Technically, the pair was rejected from the 21-day SMA yesterday which we previously noted as a level of resistance and the pair is approaching the top of its weekly cloud which comes in around the 80.44 level and is significant support. With more easing expected at tomorrow’s BoJ policy meeting, markets are speculating on the method of accommodation. More asset purchases (current chatter indicates about ¥5-10T), extending maturities of purchases past 2-years, and raising the 1% inflation target are some options to combat deflation. With many options available to the bank, the number and degree of measures taken will dictate the reaction in the yen.

• NZD is relatively stable against the G10 and much weaker against the yen after the Reserve Bank of New Zealand (RBNZ) kept the policy rate unchanged at 2.5%. The policy statement indicated that the NZD “has stayed elevated despite recent falls in commodity prices. Should the exchange rate remain strong without anything else changing, the Bank would need to reassess the outlook for monetary policy settings”. This implied the prospect of a future rate cut if the kiwi remains elevated. NZD/USD is lower and sees key support around the 0.8075/95 area which is where the 100 and 200-day SMA’s come in and NZD/JPY is approaching horizontal support around the 65.50/60 level.

Source: Forex.com

26.04.2012