It will likely be a tale of two halves tomorrow during Asia.
The Bank of Japan will likely instill volatility early on, but we may find the markets revert back to a lull as we await the FOMC meeting overnight.
The BoJ have promised a ‘comprehensive assessment’ of their policies tomorrow so there is an expectation of action. But opinions remain divided within the central bank, which is leaving markets uncertain as to what exactly to expect. This has kept a lid on volatility – you’d expect this on the morning of a meeting, but not usually the days leading up to it.
This just goes to show the importance of tomorrow’s meeting and why the BoJ could steal the thunder from the Fed, who are widely expected to keep rates on hold.
Traders are likely to take a ‘for or against yen’ approach tomorrow, as it really comes down to whether or not traders are satisfied with easing measures. Failure to deliver should send the yen soaring and adequate easing should at least keep a cap on yen gains. It would likely take some drastic measures to send it lower and keep it there, though.
AUD/JPY sits above key support at Y76, a level that could easily break tomorrow if BoJ under-deliver. There’s also not much support between 76c and 77.52, the ‘Brexit low’, so we could find any downside break hard and fast.
AUD/USD managed to hit a 6-day high overnight but traded as a former shadow of itself today. RBA minutes provided no further clues over the statement, but then it was never expected to set the world alight. This provided no compelling reason to buy or sell Aussie, allowing it to trade in a narrow range today.
Overnight support sits at 0.7526 with resistance at 0.754 and 0.757. Trading within a bullish channel from the 0.7441 low, traders may opt to buy any dip towards 75c but, with the central bank meetings looming, we don’t expect them to hang around too.
The FOMC meeting is more likely to provide a directional bias for AUD/USD – as traders will be Yen focused tomorrow, both AUD and USD are likely to move in relative tandem to reduce volatility. This makes AUD/JPY a better bet for AUD traders, assuming you like momentum.