RBA Minutes, BoJ Keeps Policy Unchanged
Swissquote Bank Ltd | Sep 15, 2015 07:19AM ET
The minutes from the RBA’s September meeting were released earlier this morning. As expected, the minutes indicate that the central bank is comfortable with its current monetary policy, i.e. cash rate at 2%. However, the RBA maintained its dovish bias as it declared that “Overall, international economic developments had increased the downside risks to the outlook”, adding that the effects on the Australian economy were still unclear. For now, the central bank is on “wait and see” mode as it is still assessing the consequences of a slowdown of the Chinese economy while waiting on the Fed to hike interest rates. Today, rates markets are pricing a 45% probability of a rate cut by the end of the year.
AUD/USD is currently testing the upper bound implied by the medium-term downtrend channel while the daily RSI is getting closer to the 50% threshold. If the Fed holds rates on Thursday, it may provide the fresh boost required to break those two strong resistances. In the meantime, we remain bearish on the Aussie.
Japan maintains current stimulus
Annualized Japan Q2 GDP shrank at -1.2% y/y despite huge stimulus provided by the “Abenomics” of Shinzo Abe. At the Bank of Japan meeting that was held yesterday, it has been voted at an 8-1 vote to maintain current stimulus for boosting the economy. Hence, the increase of the monetary base will remain at the annual pace of 80 trillion yen. Today, BoJ Governor Haruhiko Kuroda will speak. Traders will closely watch any hints indicating that the monetary base will be expanded.
We consider that there are clear evidences for the BoJ to do it. Indeed, consumer spending is still at a low level and the inflation gauge is at zero. Besides, the 2% inflation target seems unreachable in the current economic conditions. Nonetheless, Kuroda has declared that there is a possibility that the BoJ may lower the inflation forecast. He added that this would be due to the drop in oil prices. However, we think that oil price is the not the main factor in the success of the Japan recovery but it is rather clear that current policies, the “Abenomics”, are failing to provide sufficient results. Lingering low oil price is only a compounding factor.
On October 30, the Bank of Japan will release its economic and inflation outlook. It is very likely that the Bank of Japan will add more stimulus. Lawmaker Kozo Yamamoto said the monetary base should be expanded by 10 trillion yen. We now wonder where Japan will stop. The massive debt-to-GDP ratio of more than 230%, which makes Japan’s debt unsustainable does not prevent the Bank of Japan to keep on applying the same policy. How long will investors remain confident in the Bank of Japan’s ability and in the “Abenomics” to stabilize the economy? We remain bearish on the JPY.
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USD/CAD - The Upside Momentum Is Fading
The Risk Today
EUR/USD is moving in either direction. Hourly resistance is now given at 1.1438 (01/09/2015 high) and stronger resistance lies at 1.1714 (24/08/2015 high). Strong support can be found at 1.1017 (18/08/2015 low). In the longer term, the symmetrical triangle from 2010-2014 favored further weakness towards parity. As a result, we view the recent sideways moves as a pause in an underlying declining trend. Key supports can be found at 1.0504 (21/03/2003 low) and 1.0000 (psychological support). We have broken the resistance at 1.1534 (03/02/2015 reaction high). We are entering an upside momentum.
GBP/USD is now moving sideways. There is no clear short-term trend. Hourly resistance at 1.5509 (27/08/2015 high) is at stake. Support is given at 1.5346 (10/09/2015 low). Stronger support is given at 1.5165 (04/09/2015 low). In the longer term, the technical structure looks like a recovery bottom whose maximum upside potential is given by the strong resistance at 1.6189 (Fibo 61% entrancement).
USD/JPY is moving in either direction. Hourly support is given at 118.61 (04/09/2015 low). Stronger support can be found at 116.18 (24/08/2015 low). Hourly resistance can be found at 121.75 (28/08/2015 high). A long-term bullish bias is favored as long as the strong support at 115.57 (16/12/2014 low) holds. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) is favored. A key support can be found at 118.18 (16/02/2015 low).
USD/CHF has failed to hold above 0.9700 and is now pushing lower. Hourly support is given at 0.9513 (27/08/2015 low). Hourly resistance lies at 0.9903 (11/08/2015 high). On the very short-term term, the pair is setting higher highs. Therefore we remain bullish on the pair. In the long-term, the pair has broken resistance at 0.9448 suggesting the end of the downtrend. This reinstates the bullish trend. Key support can be found 0.8986 (30/01/2015 low).
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