This guest article was written by Ashwin Peswani who is the Regional Director of .
Although US housing market details on Tuesday joined hands with recently weaker data-points (except CPI), the US dollar managed to close the day in positive territory as market players smelled more chances of a JPY downturn and greenback rise after the respective monetary policy meetings of the BoJ and Federal Reserve.
Further, weaker prints of German PPI and pessimism in the UK dragged the EUR and the GBP south while the AUD, NZD and CAD maintained their upward moves as the expected drop in crude inventories helped commodity prices.
Moreover, higher interest-bearing currencies like the AUD and NZD got additional advantages ahead of the BoJ meeting while the CHF also strengthened on better than expected GDP print and improving economics as per the Swiss State Secretariat for Economic Affairs.
BOJ surprises with 10-year rate target
Wednesday started with a bang as the BoJ surprised global markets by announcing an out of the box measure to control its bond yields while leaving benchmark interest-rates unchanged at -0.1%. With this measure the central bank’s QE, which previously was set at 80 trillion yen ($780 billion) per annum, may now fluctuate in the short term depending upon the yield curve. The JPY first plunged against most of its counterparts but is now undergoing a recovery as the BoJ governor said new measures will help the central bank achieve 2.0% inflation during FY 2017.
With the BoJ turning the market moves and the FOMC in the pipeline to do the same, investors are less likely to observe the rest of the second-tier economies such as Canadian Wholesale Sales, but might take note of the crude inventories to put trades. Further, the monetary policy meeting of the RBNZ after the Fed meeting could also provide noticeable moves for the NZD.
Eyes on Fed
As the FOMC isn’t likely to alter its monetary policy, traders are expected to concentrate on economic projection and the Fed Chair’s press conference. If the Chair provides clear signals for a December rate-hike, which is more likely, the US dollar might spike up after witnessing a pullback during early announcement time. Hence, it would be better to wait till the Fed Chair speaks and then to put a long on the USD.
Technical suggestion – EUR/USD to print at the 1.1080 mark with 1.1230 being resistance while GBP/USD is set to visit 1.2880 and has 1.3065-70 as the upside figure to observe. Further, the USD/JPY has already started paring its losses and might revisit the 101.20-30 area with 102.50 being the upside barrier. The AUD/USD-NZD/USD are likely to continue rallying towards 0.7640 and 0.7360 respectively while 0.7520 and 0.7265 become adjacent supports to look at. However, bear in mind that the market may continue trading wild due to important announcements and hence it would be better to trade with clear stop-losses.
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