Yen Weakness Continues On BOJ Speculation, BOC Watched

The Japanese yen remains the weakest currency as recent selloff in the currency pushed USD/JPY through 80 psychological level briefly today. Speculation of additional easing from BoJ, as soon as on it's meeting next week, intensified further. its reported that BoJ officials are already discussing additional measures to boost recovery that include expansion of its asset buying program. Meanwhile, political pressure continues to be on the central bank. Seiji Maehara, the first minister to join a BoJ meeting in nearly a decade, said he'd probably join next week's meeting again. Maehara said today that he hopes to "continue calling on the BOJ to pursue powerful monetary easing to achieve at an early date its 1 percent inflation target". USD/JPY retreats mildly after breaching 80 but that should be relatively shallow. We'd expect broad based weakness in the yen to continue in near term.

Euro continues to consolidate in tight range against other major currencies except yen. Moody's downgraded ratings on five Spanish regions. That include Catalonia to Ba3 from Ba1, Extremadura to Ba1 from Baa3, Andalucia to Ba2 from Baa3, Castilla-La Mancha to Ba3 from Ba2 and Murcia to Ba3 from Ba1. Moody's noted that the downgrades were “driven by the deterioration in their liquidity positions, as evidenced by their very limited cash reserves as of September 2012 and their significant reliance on short-term credit lines to fund operating needs." Elsewhere, It's reported that the ESM is facing another legal challenge as an independent member of the Irish parliament reached EU Court of Justice. And the luxembourg-based court has engaged a full force of 27 judges to consider the challenge.

Canadian events will be the major focus today. BoC is expected to left rates unchanged at 1.00%. Key attention will be on whether the bank would change the wordings of the statement to remove the tightening bias. BoC said that "some modest withdrawal of the present considerable monetary policy stimulus may become appropriate" last time. But recent comments from officials hinted that the economic outlook has somewhat deteriorated recently. BoC governor Carney warned last week that the "synchronous slowdown under way in the global economy" could spill over into Canada. And, BoC's revised forecast this week "will take into account the impact of the uncertainty." Finance Minister Jim Flaherty said that economists have told them to "anticipate moderate growth" and the economic forecasts may have to be revised downwards.

Canadian dollar's weakness is clearly felt recently. EUR/CAD is now at an important junction, pressing 55 weeks EMA and a long term falling trend line resistance. Recent development suggests that a medium term bottom is at least formed at 1.2126 on bullish convergence condition in weekly MACD. Also, whole down trend from 2008 high of 1.7511 might be finished too. Sustained trading above 55 weeks EMA (now at 1.2978) will affirms this bullish case and target 1.4378 key resistance. In any case, near term outlook will stay bullish as long as 1.2573 minor support holds.