Yen Surged After BoJ, Dollar To Look For Support From Key Economic Data
ActionForex | May 02, 2016 04:04AM ET
Yen surged broadly and strongly last week after BoJ surprised the markets by standing pat. On the other hand, dollar ended as the second weakest major currency as FOMC left no hints on June hint in the post meeting statement. There was additional pressure to the greenback and stocks after weak GDP data from US as well as disappointing corporate earnings. DJIA seemed to go southward with the greenback and closed sharply lower at 17773.64. Aussie was indeed the weakest one after poor consumer and production inflation data. Weakness in dollar was also reflected in the rise in gold, which closed at 1290.5 after failing to take out 1300 handle. WTI crude oil extended recent up trend to close at 45.99. The markets will come back next week with a string of important economic data including ISM indices and NFP and dollar will look into them for some support. Meanwhile, Aussie will face the test from RBA meeting.
To recap central bank activities last week, contrary to market expectations of taking interest rates on loans to the negative territory, BOJ left its monetary policy unchanged. It would continue to increase the monetary base by around 80 trillion yen per year. Meanwhile, by a 7-2 majority vote, the central bank would continue to apply a negative interest rate of -0.1% to the Policy-Rate Balances in current accounts held by financial institutions at the central bank. On macroeconomic outlook, BOJ extended its ETA for reaching the 2% CPI price stability target, for a 6th time, to 'during FY17' from 'around H1 FY17'. It also lowered its real GDP and core CPI forecasts. More in BOJ Failed To Take Loan Rates To Negative, Downgrading Growth And Inflation Forecasts .
The Fed again left the monetary policy unchanged with Kansas City Fed president Esther George the only members favoring a rate hike), Policymakers downgraded the assessment of economic activities but added the moderation in pace should be transitory. While acknowledging improvement in the labor market, the central bank saw little evidence that inflation and inflation expectations were firming. The 'risk' language was removed, while discussions are that 'balance of risk' was not found, in the April statement. It was, however, replaced by the pledge that the Fed would continue to 'closely monitor inflation indicators and global economic and financial developments'. We see the Fed is not in a hurry to increase interest rate further. While there remains chance for a hike in June, policymakers refrain from indicating a high chance of it. More in Fed Removes Language On Risks, June Hike Remains Possible But Uncertainty Increases .
Following a rate cut in March, the RBNZ left the policy rate unchanged at 2.25% this month. The accompanying appears less dovish than the previous meeting as policymakers again noted the housing price pressure in Auckland and they decided to drop the phrase that headline inflation will 'take longer to reach the target range'. However, the easing bias remains with the central bank noting that 'further policy easing may be required to ensure that future average inflation settles near the middle of the target range. We will continue to watch closely the emerging flow of economic data'. The possible timing for another rate cut might be in June or August, given both are full MPS meetings More in RBNZ Keeps Its Powder Dry In April, Less Dovish Though Easing Bias Remains .
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Dollar index extended the fall from 100.51 by taking out 93.62 and reached as low as 93.00. Deeper decline is extended this week towards 92.18/62 support zone (38.2% retracement of 78.90 to 100.39 at 92.18). At this point, we'd continue to expect strong support from 92.18/62 to contain downside and bring near term reversal. The first reason is that fall fro 100.51 is viewed as the third leg of the sideway consolidation pattern from 100.39 medium term top. Secondly, bullish convergence condition remains in daily MACD. Break of 95.19 resistance should confirm reversal. However, sustained break of 92.18 will invalidate our view and target 61.8% retracement at 87.10.
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