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Bank of Japan Injects Stimulus

A guest post written by DAR Wong

Currency Market Observations – 8 April 2013

Fundamental Outlook

The US non-farm payroll grows less than median forecast amid concerns that the federal budget is not sustainable for recovery plan. Japan announces new stimulus injection that put yen on new devaluation trend. The European central banks remain the interest rates unchanged but will prepare to act on lower rate cut should recession spread.

The US Institute for Supply Management’s factory index slid to 51.3 from an almost two-year high of 54.2 in February. On back to back, another report by the same institution released its services index declined to 54.4 from a one-year high of 56. Market analysts reckon this could be due to effect of federal budget cut in output slowdown.

The weekly jobless claims filed by American workers rose 28,000 to 385,000 in the week ended 30 March, at 4-month high record. The major monthly data showed US payroll grew only 88,000 in March and made the smallest gain in past 9 months. Jobless rate fell to 7.6 percent from previous 7.7 percent.

Dow Jones stocks and bond yields declined as market showed concerns that federal budget cut is not sufficient to sustain long-term recovery. Meanwhile, trade deficit gap in February unexpectedly narrowed by 3.4 percent to USD43 billion from a revised USD44.5 billion in January, due to higher oil exports.

The Japan’s quarterly Tankan report for large manufacturers was at minus 8 in March, higher than minus 12 in previous quarter ended December. However, Bank of Japan (BOJ) policymakers vow to end the deflation and aim at 2 percent inflation for recovery.

On Thursday, BOJ announced the stimulus of putting up monthly JPY7 trillion (USD72 billion) in bond purchases to revive the ailing economy. Yen devalued and lifted the Asia stocks. The stepping plan of BOJ governor Haruhiko Kuroda in following the bold “new-money salvation” after the US FED, European Central Bank (ECB) and the Bank of England (BOE) are fully aligned to open global monetary floodgate in coming months.

Euro-area inflation was 1.7 percent in March compared to 1.8 percent in previous month. The target of ECB is to aim at 2 percent ceiling for economic recovery. An index of manufacturing output in the 17 euro-nations dropped to 46.8 last month from 47.9 in February, but still better than initial estimate.

Another report on jobless rate in Eurozone rose to 12 percent in February. Both European Central Bank (ECB) and Bank of England (BOE) held their interest rate unchanged at 0.75 percent and 0.5 percent respectively. ECB President Mario Draghi said the policymakers are ready to cut interest rates and inject more measures if economy deteriorates further. Meanwhile, BOE officials maintain the asset purchase program at GBP375 Billion to stimulate growth.

Last week, Bank of England (BOE) officially took over the authority to regulate the financial industry from Financial Services Authority (FSA), marking the biggest revamps in London financial industry. Pound value reversed up amid price rise in 10-year gilts.

Technical Forecast

USD/JPY rose aggressively from below 93.00 bottoms and closed at 97.50 areas for the weekend. The market is triggered with Yen devaluation after Japan announced new stimulus to end deflation. This week, we reckon the support will be resting at 96.00 – 96.30 regions but upside potential remains viable at 100.00 benchmarks in near future. We hope to see anther drawdown correction before the ascension.

EUR/USD reversed from 1.2745 bottoms last week after central bank governor committed to new measures should economic deterioration persists. Technically, we reckon the support will act resilient at 1.2850 regions while upside potential may climb to 1.3100 targets in coming week. Abandon your long-view if the trend settles below 1.2850 supports.

GBP/USD recovered to 1.5364 highs on Friday and receded to close at 1.5220 for the weekend. This week, we forecast the trend will be supported at 1.5150 – 1.5180 areas and probably ascend higher if bargain hunting emerges. Topside potential aims at 1.5500 if USDX begins to recede for countering rapid weakening Yen. Abandon your long-view if the market pierces below 1.5150 supports.

Dar Wong

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

Wong is the founder and Principal Consultant of PWForex.com and holds a professional
qualification in NASD series 3 and 5 approved by National Futures Association (USA).

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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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