Markets Stays In Tight Range As Traders Are Cautious Ahead Of BOJ

Major currency pairs are stuck in tight range today so far. Asian equities were mixed and provided no inspiration. Euro is soft against dollar and yen and could head lower as correction extends. The meeting between Spanish and Italian Prime Ministers' today would show that split remains between the 2 debt-ridden countries. Italy's Monti indicated last week his preference for Spain to seek a full bailout first as this would lower Italy's borrowing cost. Monti blamed that Spain "has an elevated spread and has problems with its banking system" but it "has hesitated and is hesitating about whether to activate the anti-spread mechanism". Yet, Spain was reluctant to ask for financial assistance from international lenders. Rajoy said that the country was still assessing if the bailout would be inline with nation interest.

In UK, BoE Deputy Governor Bean said that while the Q3 GDP figure was stronger than expected, he urged to "avoid getting over-excited". Bean warned that "the big picture is of an economy that's been bumping along the bottom", and Q4 growth could be weak. But Ben also noted there's “reason for some optimism going forward" as some of the headwinds have "abated". And he hailed that UK banks made "significant progress in improving their resilience". Deputy prime minister Clegg echoed and said that "recovery is going to be slow". And he emphasized that it's "part of a long healing process" and "part of a complex rebalancing process".

BoJ announcement tomorrow is the first major focus of the week. Markets have been anticipating additional easing from the central bank as much work is needed to be done to achieve the 1% inflation target. Finance minister Jojima said that "the government and the BOJ share the view that it is extremely important to beat deflation." And he urged BoJ to "continue to promote bold monetary easing while working closely with the government". It's speculated that BoJ would expand JGB purchase by another JPY 10T. Also, the central bank might introduce an open-ended operation for the quantitative easing program until it reaches the inflation goal.

Latest CFTC data showed that Euro net short was relatively unchanged at 55.2k contracts on October 23. Biggest change was found in Japanese yen which changed form 10.1k net longs to 18.2k net shorts. Sterling net longs dropped slightly to 18.4k. Australia dollar net longs rose slightly to 45.7k, up from 38.4.Canadiand dollar net longs dropped slightly to 89.1k.

On the data front, Japan retail sales rose 0.4% yoy in September versus expectation of 1.0%. UK mortgage approvals will be the main feature in European session. From US, personal income and spending are expected to to growth 0.4% and 0.6% respectively in September. The headline PCE and core PCE are expected to accelerate slightly to 1.6% yoy and 1.7% yoy.