Market Brief
Today is a busy day as several central banks unveil their respective monetary policy decisions. The Bank of Japan was the first to kick off early this morning as it announced a new set of measures aimed at lifting inflation towards the 2% target. After introducing negative interest rates and doubling ETF purchases earlier this year, the BoJ decided to introduce an interest rate target for 10-Year government bonds. Apart from this, the Japanese central bank held all other tools: negative interest rate at -0.1%, the size of the QE at ¥80tn per year and the purchase of ETF at ¥6tn per year. After some wild swings, which pushed USD/JPY as low as 101.03, the Japanese yen fell as much as 1.20% to 102.79. Looking at the big picture, it seems that the BoJ is having a hard time convincing the market that it still has what it takes to bring inflation closer to the target. Overnight, the yen was down only 0.85% against the greenback and we would not be surprised if the yen completely erases last night’s losses as the market grows increasingly doubtful about the BoJ’s ability to reach the inflation target and drive its own currency. On the downside, a support can be found at 101.03 (low from September 21st), while on the upside, a resistance lies at 104.32 (high from September 2nd).
The US dollar extended gains in overnight trading ahead of this afternoon's FOMC meeting as it rose 0.10% against the EUR, 0.12% against the pound, 0.14% against the Swiss franc and 0.18% against the New Zealand dollar. However, these gains were mostly due to the BoJ easing move rather than a rebound in hawkish expectations with respect to this evening's Fed monetary policy decision. The probability of a September rate hike, as measured by the Fed funds futures, has been steady at 22% for the last few days. We do not expect a move at this meeting but we believe Janet Yellen may lay the ground for a December move (just like last year). The dollar index was up 0.15% to 96.16.
In the equity market, Japanese stocks were buoyed, with the broad Topix index surging 2.71% as the Japanese yen slid. The Nikkei index rose 1.91% to 16,807.62. Elsewhere, stocks were trading broadly higher as the era of ultra-lose monetary policy shows no signs of stopping just yet. In Europe, futures were blinking green, indicating a higher open.
Today traders will be watching CPI from South Africa; MBA mortgage application, crude oil inventories and FOMC rate decision at 2pm EST/7pm BST; RBNZ interest rate decision from the RBNZ.
Currency Tech
EUR/USD
R 2: 1.1616
R 1: 1.1428
CURRENT: 1.1141
S 1: 1.1046
S 2: 1.0913
GBP/USD
R 2: 1.3534
R 1: 1.3445
CURRENT: 1.2982
S 1: 1.2851
S 2: 1.2798
USD/JPY
R 2: 107.90
R 1: 104.32
CURRENT: 102.31
S 1: 99.02
S 2: 96.57
USD/CHF
R 2: 0.9956
R 1: 0.9885
CURRENT: 0.9795
S 1: 0.9522
S 2: 0.9444