Forex News and Events:
Bank of Japan was the third bank in the past two weeks to announce some form of quantitative easing in light of the globally dimming outlook for economic growth. The BoJ added JPY 10TN to its asset purchase funds, almost double what some economist had anticipated but the JPY only depreciated slightly to 79.22 on Wednesday before strengthening back to 78.38 and continues to strengthen today, moving lower to 78.05. This is mainly due to the fact that investors deemed the intervention to be less aggressive than the Fed’s or the ECB’s. As a matter of fact, the Fed has pledged to an open-ended MBS buying program, only capping the monthly amount it could invest and the ECB has committed to capping peripheral bond yields through unlimited purchases. Trade numbers for the world’s third largest economy were released late yesterday evening at 23:50 GMT, showing that the balance had deteriorated further to JPY -0.47TN from last month’s -0.37TN. The main reasons for the deficit are the grim global outlook and the sustained strength of the JPY. As a matter of fact, exports have declined 5.8% in August from a year earlier, and the BoJ’s monthly report puts it on relatively weak overseas economies which “have moved somewhat deeper into a deceleration phase”. A key condition to the improvement of the Japanese economy, export growth and industrial production is that “overseas economies gradually emerge from the deceleration phase”. The report specifies that “there remains a high degree of uncertainty about the global economy, and furthermore, attention should be paid to the effects of financial and foreign exchange market developments on economic activity prices”. On the positive side, the Central Bank deems domestic demand to be “resilient”, mainly fueled by reconstruction effort. What’s more, the Bank sees a fixed investment “on a moderate increasing trend” as corporate profits improve. Also, accompanying a steady employment situation, private consumption and housing investment have picked up. We however, are not as optimistic for the short-term about the situation for the JPY. We believe that we have not yet reached the bottom of the crisis in Europe, and so JPY strength is to be expected in case of a flight to safe haven assets.
Today's Key Issues (time in GMT):
2012-09-20T02:30:00 JPY CN HSBC Mfg PMI (Prelim)
2012-09-20T05:00:00 JPY JP BoJ Monthly Report
2012-09-20T06:35:00 EUR JP BoJ Gov Shirakawa Speech
2012-09-20T06:58:00 EUR FR Mfg PMI (Prelim)
2012-09-20T07:28:00 EUR GE Mfg PMI (Prelim)
2012-09-20T08:00:00 GBP EU Mfg PMI (Prelim)
2012-09-20T08:30:00 GBP UK Retail Sales (YoY)
2012-09-20T10:00:00 USD UK CBI Industrial Trends Orders
2012-09-20T12:30:00 USD US Initial Jobless Claims
2012-09-20T14:00:00 EUR US Phily Fed Mfg PMI (Prelim)
2012-09-20T16:00:00 EU ECB Draghi Speech
The Risk Today:
EURUSD It appears the grace period for last week’s ECB announcement is coming to an end, and the temporary hiatus on EURUSD selling has now been lifted with the pair dropping to a low of 1.2941 today. The clearing of demand at 1.3029 opens the way for a test of 1.2825 support. The first levels of demand are located at 1.3058 (intraday high), 1.3172 (14th Sept high), and 1.3283 (1st May high). Next levels of supply located at 1.2825 (13th Sept low & 200d MA), 1.2754 (10th & 11th Sept low), 1.2507 (100d MA), 1.2463 (31st Aug low), 1.2386 (14th & 17th Aug high), 1.2241 (10th Aug low), 1.2160 (13th July low), 1.2046 (25th July low), 1.2000 (psychological support) then 1.1870 (7th June low).
GBPUSD GBPUSDs corrective pullback has been slightly more aggressive then we had anticipated with the bears pushing the pair down to 1.6163 this morning. However, as long as 1.6143 support level holds the risk is for an uptrend extension to 1.6300. The next offers are located at 1.6300 (30th April high) and 1.6454 (29th Aug ’11 top). The supply zone is located at 1.5970 (18d MA), 1.5918 (4th Sept breakout level), 1.5745/53 (30th July pivot & 100d MA), 1.5665 (uptrend channel floor), 1.5564 (8th Aug low), 1.5656 (intraday low),1.5458 (26th July low), 1.5405 (8th June low), 1.5390 (6th June low), then 1.5266 (13th Jan low).
USDJPY The last 7-days has been a bit of a roller coaster for USDJPY, as the pairs price experienced sharp oscillations between 77.13 and 79.12 – but on balance there was very little directional bias. After yesterdays false breakout we are going to sit this one out till we see a meaningful direction developing (thought late yesterdays price action was very bearish suggesting further downside). Resistance is located at 79.12/20 (20th Aug & 19th Sept high), 80.11 (5th July reversal top), 80.62 (2nd May high), 81.60 (failed corrective rally), 82.56 (6th April high), 82.99 (3rd April high), trigger resistance at 83.40. The next bids can be found at 77.13 (13th Sept low), 76.58 (3rd & 17th Jan low) then 76.03 (1st Feb low).
USDCHF USDCHF further recovered some of its recent losses with a high of 0.9337 but we expect the overall bearish tone to resume as supply around 0.9355 kicks in. The first levels of support should be located at 0.9238 (14th Sept low), then 0.9194 (7th & 11th May low) and 0.9043 (1st May low). The next levels of resistance are located at 0.9355 (14th Sept high), 0.9580 (7th Sept high), 0.9661 (22nd Aug high), 0.9810 (10th Aug high & uptrend channel), 0.9900 (2nd Aug high), 1.0000 (psychological resistance), 1.0070 (1st Dec 11’ pivot high), 1.0149 (2010 pivot), then 1.0294 (10th Sept 10’ high).
Resistance and Support: