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Bank of Japan Cuts Interest Rate to Negative

A guest post written by DAR Wong

Currency Market Observations – 01 February 2016

Fundamental Outlook

The U.Snew home sales rise to 8-year record high amid scepticism while orders for durable goods fall. Bank of Japan cuts interest rate to negative zone for first time in history. U.K. makes smallest growth since 2013.

The U.S. Conference Board of consumer confidence expanded 98.1 in January and better than forecast. New home sales rose to 8-year high at 544,000 annualized rates in January as housing prices tumbled. Analysts remain skeptical until they see the February data again as new cooling measures started in November might have backlogged many housing purchases.

American pending home sales grew 0.1 percent in January and better than minus 1.1 percent contraction in previous month. Core durable goods, excluding transport equipment, reduced to minus 1.2 percent after it was revised at par growth in December. Jobless claims for the week ended 23 January were at 278,000 and down from 294,000 in previous week. GDP for final quarter expanded at 0.7 percent and disappointed market.

Japan’s retail prices went down 1.1 percent in January and worse than forecast. The core consumer prices in Tokyo drops 0.1 percent in January on yearly basis against a positive growth. Nationwide consumer prices expanded at 0.1 percent on annualized rates and grows at slow rate. Another report on housing starts plunged 1.3 percent in December on yearly basis from positive 1.7 percent gains in prior month.

Bank of Japan adopts negative interest rate in first time ever by implementing minus 0.1 percent at deposit rates. Policymakers keep the monetary expansion unchanged at JPY80 trillion per year and still aim at 2 percent inflation to be achieved by end 2016 despite wide disbelief in markets.

German Ifo business climate grew to 107.3 in January but lower than revised 108.6 in last month.Prelim inflation report for January is expected to contract 0.8 percent and worse than 0.1 percent fall in last month.

Eurozone flash estimate for consumer prices aims at 0.4 percent in January on yearly basis and above average expectation. European Central Bank President Draghi has reiterated policymakers are ready to add stimulus as early in March if growth stalls.

Prelim report for quarterly GDP in UK ended in December expects 0.5 percent growth with small advancement. This is slowest growth since21013 and policymakers are observing worldwide risk for controlling interest rates at status-quo.

Technical Forecast

USD/JPY pulled up more than 300 pips on Friday to above 121.00 after the news released on negative interest rates. This week, we foresee the trend will be capped below 122.00 and trade sideways with support at 120.00 regions. Consolidation is expected to move inside this range before it drops again after 2-3 weeks’ time.

EUR/USD declined and closed at 1.0829 on Friday. This week, we forecast the range will be constricted from 1.0700 – 1.0950 regions Market is trapped in consolidation and uncertain until we see a clear trend in new policy from European Central Bank of USDX direction.

GBP/USD closed at 1.4241 on Friday after it swung for few days. Technically, we expect the market to be supported at 1.4200 levels and likely to climb higher at 1.4400 – 1.4500 regions in coming week. Abandon your long-view if the trend pierces below 1.4200 levels.

Dar Wong

This post is contributed by OPF Guest Blogger, DAR Wong.

DAR Wong is a registered fund manager in Singapore with 26 years of global trading experiences. You may reach him at dar@pwforex.com

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DISCLAIMER: This post is written for general information only. The author, publisher and/or any third party involved in the distribution of this work assume no legal responsibilities and shall have no liability whatsoever for any direct or consequential losses, costs or expenses arising from the use of the information contained herein.

 






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