On April 30th, Japan is scheduled to release March CPI and the BOJ will conclude a one-day policy meeting. March CPI is expected to rise by 0.3% compared to 0.1% decline last month with the annual inflation rate declining by 1.2%. This would mark the 13th straight month that Japan’s annual inflation rate has declined. Japan’s annual inflation rate has been positive for only four months since 1998. The March CPI report is expected to confirm that rate of decline slowed but deflationary pressures continue in Japan and the. The Japanese government has pressured the BOJ to take aggressive actions to combat deflationary pressures. In March the BOJ doubled its lending program but stopped short of taking additional measures to combat deflation like buying government bonds to increase the money supply and liquidity.

 Recent Japanese economic data points to improving Japanese economy. Japan reported that exports climbed 43.5% in March .This marked the fourth straight month of improving exports sales. The BOJ’s March Tankan business sentiment survey confirmed improving business confidence and a smaller decline in anticipated CAPEX spending. The improvement in Japan’s economic outlook makes it more difficult for the BOJ to justify additional easing monetary policy and contributes to a moderate drop in Japanese government pressure for the BOJ to ease policy. The moderate weakening of the JPY makes monetary conditions less tight and may help reduce deflationary pressure. USD/JPY bottomed at 86 last November and is currently trading near 94.

 At April BOJ policy meeting the BOJ elected to hold policy steady and refrain from additional monetary ease. The BOJ policy statement said that the economy has been picking up but there is not yet sufficient momentum to support a self-sustaining recovery. The BOJ policy statement also said overcoming deflation is a critical challenge. Japan’s Finance Minister Kan wants Japans inflation to rise by 1 to 2% and the BOJ to establish an inflation target. BOJ governor Shirikawa said it would be wrong to focus on inflation. The BOJ is expected to raise its CPI growth forecast at the April 30th policy meeting. According to a MarketWatch report the BOJ will raise its CPI forecast for this fiscal year to 0.2% from flat. The upgrade of BOJ CPI forecast would be the first in three years confirming that the BOJ believes Japan is starting to emerge from deflation. The BOJ is also expected to upgrade its growth forecast. The BOJ upgrade of its CPI and growth forecast will help the BOJ deflect government pressure for additional easing. The BOJ will leave monetary policy unchanged and pledge additional easing if warranted.  

 The JPY may briefly benefit from the BOJ upgrade of its inflation and growth forecast. The impact however may be short-lived as the BOJ is expected to continue to maintain accommodative policy. The BOJ is the only major central bank to have recently taken additional easing measures doubling the size of its auction to ¥20trln in March. The BOJ exit from easy monetary policy remains distant. JPY is vulnerable to speculation that the Federal Reserve will raise rates ahead of the BOJ. The BOJ is expected to leave monetary policy unchanged for the remainder of 2010. The Fed is likely to begin tightening before year end. USD/JPY may be heading towards 100 pressured by widening yield differential and JPY re-emerges as the preferred funding currency. Recent JPY price direction has re-linked with risk sentiment and the direction of equities. A big jump in risk aversion could discourage selling of the JPY as a funding currency and would derail the move towards 100. The JPY surged Tuesday supported by a spike in risk aversion as stocks tank on news that S & P downgraded Portugal’s debt rating and the Greek debt to junk.

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On April 30th, Japan is scheduled to release March CPI and the BOJ will conclude a one-day policy meeting. March CPI is expected to rise by 0.3% compared to 0.1% decline last month with the annual inflation rate declining by 1.2%. This would mark the 13th straight month that Japan’s annual inflation rate has declined. Japan’s annual inflation rate has been positive for only four months since 1998. The March CPI report is expected to confirm that rate of decline slowed but deflationary pressures continue in Japan and the. The Japanese government has pressured the BOJ to take aggressive actions to combat deflationary pressures. In March the BOJ doubled its lending program but stopped short of taking additional measures to combat deflation like buying government bonds to increase the money supply and liquidity.

 Recent Japanese economic data points to improving Japanese economy. Japan reported that exports climbed 43.5% in March .This marked the fourth straight month of improving exports sales. The BOJ’s March Tankan business sentiment survey confirmed improving business confidence and a smaller decline in anticipated CAPEX spending. The improvement in Japan’s economic outlook makes it more difficult for the BOJ to justify additional easing monetary policy and contributes to a moderate drop in Japanese government pressure for the BOJ to ease policy. The moderate weakening of the JPY makes monetary conditions less tight and may help reduce deflationary pressure. USD/JPY bottomed at 86 last November and is currently trading near 94.

 At April BOJ policy meeting the BOJ elected to hold policy steady and refrain from additional monetary ease. The BOJ policy statement said that the economy has been picking up but there is not yet sufficient momentum to support a self-sustaining recovery. The BOJ policy statement also said overcoming deflation is a critical challenge. Japan’s Finance Minister Kan wants Japans inflation to rise by 1 to 2% and the BOJ to establish an inflation target. BOJ governor Shirikawa said it would be wrong to focus on inflation. The BOJ is expected to raise its CPI growth forecast at the April 30th policy meeting. According to a MarketWatch report the BOJ will raise its CPI forecast for this fiscal year to 0.2% from flat. The upgrade of BOJ CPI forecast would be the first in three years confirming that the BOJ believes Japan is starting to emerge from deflation. The BOJ is also expected to upgrade its growth forecast. The BOJ upgrade of its CPI and growth forecast will help the BOJ deflect government pressure for additional easing. The BOJ will leave monetary policy unchanged and pledge additional easing if warranted.  

 The JPY may briefly benefit from the BOJ upgrade of its inflation and growth forecast. The impact however may be short-lived as the BOJ is expected to continue to maintain accommodative policy. The BOJ is the only major central bank to have recently taken additional easing measures doubling the size of its auction to ¥20trln in March. The BOJ exit from easy monetary policy remains distant. JPY is vulnerable to speculation that the Federal Reserve will raise rates ahead of the BOJ. The BOJ is expected to leave monetary policy unchanged for the remainder of 2010. The Fed is likely to begin tightening before year end. USD/JPY may be heading towards 100 pressured by widening yield differential and JPY re-emerges as the preferred funding currency. Recent JPY price direction has re-linked with risk sentiment and the direction of equities. A big jump in risk aversion could discourage selling of the JPY as a funding currency and would derail the move towards 100. The JPY surged Tuesday supported by a spike in risk aversion as stocks tank on news that S & P downgraded Portugal’s debt rating and the Greek debt to junk.

FX Highlights

• The USD is trading mixed with the JPY rising supported by a decline in risk appetite as Asian equity markets drop and the impact of the Greek austerity plan fades, Moody’s says Greece must carry out the austerity plan perfectly or the Greek sovereign debt rating may be cut, the trade awaits today’s result of the Greek bond auction and EU reaction to the Greek budget plan, the BOE elects to keep monetary policy and its asset purchase program on hold, GBP pressured by report of a drop in UK house prices, commodity currencies pressured by global growth concern, Australian trade deficit widens, ECB leaves monetary policy unchanged, EUR pressured by ongoing concern about the Greek fiscal outlook and weak Q4 GDP
• Focus turns to today’s release of US jobless claims, productivity and unit labor costs factory orders and pending home sales, Canada’s building permits and Ivey PMI and the ECB press conference, investors will be looking to the press conference to see whether the ECB adopts additional measures to withdraw stimulus or delays its exit strategy
• The BOE holds interest rates and asset purchases unchanged, February Halifax house price index declined by 1.5%, GBP mixed
• Australia’s January trade deficit widens to 1.176bln, a 1.5bln deficit was expected, exports rose by 1% and imports declined by 3%, AUD lower
• Japan’s Q4 CAPEX spending declined by 17.3%, BOJ’s Noda rejects government calls for the BOJ purchase of JGB’s, Noda says the BOJ bond buying may push long bond yields higher and additional quantitative ease won’t lift prices, JPY higher
• EU Q4 GDP rose by 0.1%, EUR lower
• Moody’s says Greek budget cuts are consistent with A2 negative outlook rating, the IMF welcomes new Greek austerity measures and said the 2010 fiscal package is very strong, French Finance Minister says Greece does not need any EU help at this time
• Fed’s Lockhart says fresh data points to slow growth
• Beige book says economic activity improved in 9 of 12 districts, consumer spending has improved slightly, residential real estate markets are improving but commercial real estate remains weak, hiring has improved but labor markets remain soft, the February snowstorm slowed economic activity
• US postal service to cut 30k jobs and reduce overtime to reduce costs
• US equity markets set to open mixed, European equities 0.25% lower, Nikkei closed 107 points lower

Upcoming Events

• US - Thursday, jobless claims for week ending 02/27 will be released expected at 470k compared to 496k last month along with Q4 productivity expected at 6.3% and Q4 ULC expected at -4.4%, January factory orders expected at 1.8% compared to 1% last month and January pending home sales index expected at 97.6 compared to 96.6 last month
• CAN - Thursday, January building permits will be released expected at 1% compared to 2.4% last month along with February Ivey PMI expected at 57 compared to 50.8 last month

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More Resources

• CastleBay hires ex-Galleon Asia equities team | Wall Street and Main
• Asian markets trade mixed on Thursday | CafeStocks MarketUpdate
• Digital Bids » Blog Archiv » Citigroup’s Auction-Rate Bonds Freeze $1 Billion in Hawaii Cash – BusinessWeek
• The Green Leap Forward ??? » How Green is China’s Stimulus Package?
• Greece’s Aid Plea Snubbed by Merkel as Protesters Seize Ministry in Athens
• Greece offers key new bond issue | The Daily Caller – Breaking News, Opinion, Research, and Entertainment
• French Fin Min: Forex Volatility Unbearable For Europe Industry – Wall Street Journal : Forex Trading Revealed – Forex Robot Reviews & Forex Guide Reviews
• Dubai Index Leads Drop in Gulf Markets on Global Growth Concern (Bloomberg)
• Inside Columbia Magazine » Blog Archive » Race To The Top
• The Cavalier Daily | Commission panel addresses concerns

Last week’s currency trading review

The Dollar was generally strong even as risk appetite got a boost from strong commodities and rising equities. Bernanke spoke before congress and reiterated that he will be holding rates low for an extended period of time and this helped improve investor sentiment. Economic data was weak with Consumer Confidence slumping to 46 vs. 56 previously. January Housing data disappointed with Existing Home Sales falling -7.2% m/m. The Euro tested 1.3450 support as the markets focus returned to Greece debt concerns. The market was able to bounce well on Friday as rumors spread that Germany may provide loan support for Greek debt. German Unemployment Change beat forecasts at 7k vs. 18 forecast and December Industrial Orders rose +0.8% vs. -1.1% previously. The EUR/USD gained +0.12% closing at 1.3628, after opening the week at 1.3611.

The Japanese Yen reversed all of last weeks gains as the crosses broke key support and the major dropped below Y90. EUR/JPY tested Y120 and is looking very heavy along with GBP/JPY which broke through to 9 month lows at Y135. January Retail Sales gained 2.6% vs. -0.1% y/y. The USD/JPY fell -2.92% closing at 88.91 after opening the week at 91.51. The GBP was the weakest of the major currencies as data underperformed with January Mortgage approvals dipping to 35k vs. 45k previously. BoE Governor King in his inflation report stated that high inflation was not a medium term issue and that QE may remain open. Concern is also being generated by the prospect of a hung parliament after the coming election and that this will create problems in passing critical budget saving reforms. GBP/USD fell -1.55% closing at 1.5235 after opening at 1.5471. The AUD held up well as Gold remained strong and Oil reclaimed $80 a barrel level. Q4 Capex surged 5.5% vs. 1.5% forecast and underpinned the argument for a rate rise in March. The AUD/USD fell -0.35% closing at 0.8955 after opening at 0.8985.

The forex trading week preview

In the States; On Tuesday, Bank of Canada Rate Announcement forecast to hold at 0.25%. On Wednesday, February Services ISM is forecast at 51.0 vs. 50.5 previously. FED beige Book Economic report also released. On Thursday, Weekly Jobless Claims are forecast at 475k vs. 496k previously. January Pending Home Sales are forecast at 1.5% vs. 1.0% previously. February Non Farm Payrolls is forecast at -50k vs. -20k previously. February Unemployment rate is forecast at 9.8% vs. 9.7% previously. We will provide our previews and reviews of these data releases in the daily summary.

In the Eurozone; On Tuesday, February CPI is forecast at 1.0% y/y. On Wednesday, German Retail Sales are forecast are forecast at -0.7% vs. 0.85 previously. On Thursday, Q4 EU GDP is forecast at 0.1% vs. 0.1% previously. Also, ECB Rate Announcement is forecast unchanged at 1.0%. On Friday, January German Factory Orders is forecast at 1.3% vs. -2.3% m/m. In the UK; On Tuesday, February Construction PMI is forecast at 48.8 vs. 48.6 previously. On Wednesday, February PMI services is forecast at 54.9 vs. 54.5 previously. On Thursday, BoE Rate Announcement is forecast unchanged at 0.5% and the BOE Asset Purchase Program is forecast to remain unchanged at 200bn. We will provide our previews and reviews of these data releases in the daily summary.

In Japan; On Thursday, Q4 CAPEX is forecast at -18.4% vs. -24.85 previously. In Australia; On Tuesday, RBA is forecast to Raise Rates 0.25% to 4.0%. On Wednesday, Q4 GDP is forecast at 0.9% vs. 0.2% previously. On Thursday, January Trade Balance is forecast at -1.6bn vs. -2.25bn previously. We will provide our previews and reviews of these data releases in the daily summary.

TECHNICAL COMMENTARY

Euro – 1.3605

Initial support at 1.3451 (Feb 25 low) followed by 1.3424 (May 18 low). Initial resistance is now located at 1.3692 (Feb 23 high) followed by 1.3788 (Feb 17 high)

Yen – 89.15

Initial support is located at 88.75 (Feb 26 low) followed by 88.56 (Feb 4 low). Initial resistance is now at 90.36 (Feb 24 high) followed by 91.29 (Feb 23 high).

Pound – 1.5160

Initial support at 1.5153 (Feb 26 low) followed by 1.5117 (May 18 low). Initial resistance is now at 1.5422 (Feb 25 high) followed by 1.5577 (Feb 24 low).

Australian Dollar – 0.8960

Initial support at 0.8801 (Feb 25 low) followed by the 0.8786 (Feb 12 low). Initial resistance is now at 0.8979 (Feb 26 high) followed by 0.9071 (Feb 23 high).

Gold – 1116

Initial support at 1088 (Feb 25 low) followed by 1078 (Feb 12 low). Initial resistance is now at 1121 (Feb 23 high) followed by 1131 (Feb 22 high).

Oil – 80.10

Initial support at 80.00 (Intraday Support) followed by 78.00 (Intraday Support). Initial resistance is now at 82.00 (Intraday Resistance) followed by 82.50 (Intraday Resistance).

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FX Highlights

• The USD and JPY trade higher supported by a spike in risk aversion as stocks decline and the European press reports that there is less chance of aid for Greece as the Greek PM comments on Germany’s Nazi past, EUR pressured by speculation of Greek debt downgrade, GBP pressured by UK debt concern and a drop in UK Q4 business investment, AUD trades lower despite RBA rate hike speculation
• Focus turns to today’s release of US jobless claims and durable goods, Bernanke’s second day of testimony before Congress and the Healthcare summit
• JPY trades at one year high versus EUR on concern that Greek sovereign debt rating may be lowered, S&P says that it may consider lowering the Greek debt rating by the end of March
• Australia’s Q4 CAPEX rose by 5.5%, RBA watcher McCrann says the RBA is likely to hike rates 25bps Tuesday, AUD lower
• EU February business climate falls to -0.98, economic sentiment at 95.9 compared to 96 last month, EUR lower
• GBP trades at a nine-month low pressured by concern about UK debt, UK business investment declined by 5.8% in Q4, a 0.1% gain was expected
• Greek strikes spread in protest to the governments plans to cut spending
• Bernanke says sustained recovery still in question, rates to stay low, sharp decline in US consumer confidence fuels risk aversion
• US equity markets set to open lower, European equities 0.25% lower, Nikkei closed 96 points lower

Upcoming Events

• US - Thursday, initial jobs claims for week ending 02/20 will be released expected at 455k compared to 473k last week along with January durable goods expected at 1% compared to 1.4% last month
• CAN - Thursday, no major Canadian economic data is due for release today

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