The USD/JPY is in the spotlight this morning, after the Bank of Japan doubled their inflation target to the 2% level that had been requested by Prime Minister Abe and adopted an “open ended asset purchasing method”. The JPY has rallied from its weakest levels in more than 2 years as the asset purchase plan does not go into effect until January 2013.
After reaching a high of 90.13 in overnight trading, USD/JPY has fallen as low as 88.36, as traders closed out “long” USD/JPY positions and stop loss fueled further selling. Support for USD/JPY is at the 88.25 level, followed by 88.00. Resistance now appears at 88.85, then 89.10.
With traders showing their disappointment with the BOJ’s actions, the focus in Japan will now be on the replacement of Governor Shirakawa in April. The person replacing him is expected to be much more dovish, but until that happens the direction of the USD/JPY will probably be neutral.
According to the BOJ announcement, in January 2014, they will introduce a method of purchasing a certain amount of financial assets every month without a termination date. The BOJ did state the economy remains “relatively weak”, as exports have decreased as so has industrial production.
After the BOJ announcement, the EUR initially rallied to a high of 1.3370 but has since moved back towards the 1.3300 level. At their finance ministers meeting in Brussels yesterday, it was agreed to release the next tranche of bailout funds to Greece. This amount will be EUR 9.2 billion. EUR 7.2 billion will be used for continued recapitalization of banks in Greece and EUR 2 billion will be used to cover the government’s budget.
While their seems to be no negative news coming out of the Euro-zone at the time being, traders seem to have lost their enthusiasm for EUR buying at the moment. It could be due to an abundance of long EUR positions, or it could be that traders are waiting for the “other shoe” to drop. Later today, there will be the release of the Euro-zone ZEW survey and there is a speech later today that will be given by ECB President Draghi. It seems traders are expecting something that may not be as EUR positive as one might think.
The range has been defined by overnight trading. I would expect us to remain in that range throughout the trading day. Support for EUR remains at 1.3280, followed by 1.3265. Resistance is at 1.3330, then 1.3370.
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