JPY slides amid stimulus package details

Market Brief

It was another volatile session for the Japanese yen. Speculation is running high as the market tries to guess what the BoJ will actually deliver at Friday’s meeting. Looking at USD/JPY over the last two days, we clearly see that the market has absolutely no clue as to what the BoJ’s next move will be. However, Prime Minister Shinzo Abe has given more information about the fiscal stimulus his government is planning to implement. At this point, there will apparently be a 28 trillion yen (USD265 billion) package, aimed at propping up the economy. More details will certainly follow in the coming days. USD/JPY slid as low as 103.99 in the early European session yesterday as market participants anticipated a disappointing announcement from the Japanese central bank. On Wednesday morning, the yen erased those gains and tested 106.5 against the greenback before stabilising at around 105.50.

In the US, the July FOMC meeting will soon commence its final day. We still anticipate that this will be a non-event as the Fed simply has insufficient solid data to support a rate hike in the foreseeable future. The Committee will therefore make some minor changes to the statement. Things will get serious however, at the September meeting. EUR/USD treaded water in Tokyo as it got stuck below the 1.10 threshold. The currency pair is still trading with a negative bias as it tested the bottom of its downtrend channel for a fourth straight day. Currently around 1.0975, a break of the 1.0950 level will leave the road wide open towards the next support that lies at 1.0822 (October 3rd).

Commodity currencies took a hit during the Asian session as most commodity prices kept sliding lower. The West Texas Intermediate fell another 0.23% to $42.85 a barrel, while the international gauge, the Brent crude, was off 0.18% to $44.80 a barrel. Since last Thursday, the WTI lost more than 7% against the backdrop of renewed glut fears. The Australian dollar debasement was also exacerbated by the mixed second quarter inflation report, raising the question of another rate cut from the RBA. Headline CPI came in at 1%y/y, down from 1.3% in the previous quarter, while the trimmed mean gauge printed at 1.7%y/y, stable compared to the first quarter but still below the central bank’s target of 2%-3%.

In the equity market, Asian equity returns were broadly mixed on Wednesday as both mainland and offshore Chinese shares were trading in negative territory. Japan equities recovered from yesterday’s sharp debasement with the Nikkei bouncing back 1.98%. In Europe, futures are blinking green across the screen, pointing towards a higher open.

Currency Tech

EURUSD
R 2: 1.1428
R 1: 1.1186
CURRENT: 1.0990
S 1: 1.0913
S 2: 1.0822

GBPUSD
R 2: 1.3981
R 1: 1.3534
CURRENT: 1.3119
S 1: 1.2851
S 2: 1.2798

USDJPY
R 2: 109.14
R 1: 107.90
CURRENT: 105.65
S 1: 103.99
S 2: 99.02

USDCHF
R 2: 1.0328
R 1: 0.9956
CURRENT: 0.9938
S 1: 0.9764
S 2: 0.9685

• S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot