It's all about Central Banks today

JPY and BOJ Monetary policy decision

• Hawkish/no announcements: JPY bullish
• Dovish/Announcement of new measures: JPY bearish
• Key pairs to watch: USD/JPY, EUR/JPY, GBP/JPY

It will be hard for the BOJ to surprise markets this month: early April the Central Bank launched an aggressive campaign to fight deflation, announcing a set of policies that that exceeded market expectations: The BOJ will not only expand its balance sheet by purchasing longer-term debt and more exotic securities like ETFs, but will also merged its asset-purchase programs and suspended a rule that prohibited the purchase of longer-term debt. 

A 2% inflation target remains the priority for PM Shinzo Abe, and market will need a large dose of facilities plus a still negative growth outlook, to take yen bearish run even further. A neutral stance coming from the Central Bank may favor yen gains more after weekend Amari’s wording on enough correction for yen. Buyers however will start surging around 101.25, past week low, as market players are not yet ready to buy the yen in full force.

GBP and BOE Minutes

• Hawkish: GBP bullish
• Dovish: GBP bearish
• Key pairs to watch: GBP/USD, EUR/GBP, GBP/JPY

During the last meeting the BOE left its economic policy unchanged, refraining from taking action ahead of governor’s swap. Mervin King will step down on June 30th this year to be replaced by Mark Carney, current Bank of Canada governor. However, the latest inflation report showed the country is somehow giving signs of growth which suggest the Minutes may offer further positive comments over the economic situation.

In such case market will be little surprised, and despite bullish for Pound, most of it is already priced in and should lead to temporal rallies. A step back on comments towards a negative economic outlook will likely put GBP under selling pressure, more over after latest inflation readings. 

USD and FED Minutes

• Maintaining QE:  USD Bearish
• Tapering QE: USD Bullish
• Key pairs to watch: EUR/USD, USD/JPY, AUD/USD, GBP/USD

Minutes had been pretty irrelevant lately, as the wording has been maintained steady: economic growth remains sluggish and will proceed at a moderate pace, while unemployment rate will gradually decline toward levels consistent with FED’s mandate. Even more, latest economic decision has shown that policy will remain accommodative, which means rates will stay at record lows and the FED will continue to buy $85 billion a month in Treasury and mortgage bonds at least until unemployment falls to 6.5%.

However, many of the voting members, even the ones that opposed earlier this year, had suggested is time to start thinking on a possible end of QE. Market has been steadily pricing it in, buying the USD in advance. A change in wording, reinforcing the possibility of tapering QE will likely see greenback extending its advance across the board, while diminishing chances of an end for QE, will likely see the currency suffering a strong set back. As for this Tuesday, balance has bend towards maintaining QE according to latest talks from Dudley and Bullard, but it won’t be until the release of the Minutes that market will know the true.