NY Session: JPY under pressure, BOC tone to drive CAD
Updated Oct 22, 2012 4:05:00 PM Written by Eric Viloria, CMT
The
greenback is trading mixed against its major counterparts – weaker
against the EUR, CHF, NZD, CAD, and GBP while firmer against the AUD,
NOK, SEK, and most notably the JPY. With no economic data releases
during the NY session, FX markets remained focused on overnight news.
The Japanese yen continues to be the big mover today and is
underperforming in the G10 space as several factors weigh on the
currency. While the JPY typically has not been trading on fundamentals
of late, a larger than expected trade deficit and -10.3% drops in
exports in September put pressure on the yen. Higher US treasury yields
weighed on the JPY and boosted USD/JPY which broke through technical
resistance around the 200-day simple moving average. The break resulted
in upside momentum for the pair and USD/JPY is currently within pips of
testing the 80.00 big figure. Furthermore, increasing pressure on the
Bank of Japan to ease more aggressively to combat deflation adversely
impacted the currency. We note, that the BoJ response has been
underwhelming and increases to the Bank’s asset purchase program have
had little impact in helping the Bank move towards its 1% inflation goal
as well as stem JPY gains. The JPY is weakest against the euro with
EUR/JPY at its highest level since early May.
Bank of Canada in focus
Tomorrow will see the Bank of Canada rate announcement and we expect the Bank to keep rates on hold at 1%. The key focus will be on the tone of the statement and markets are expecting a shift in stance from hawkish to neutral. Recent CPI figures out of Canada came in softer than expected and comments by the BoC Governor Carney suggest that tomorrow’s statement may take a more cautious stance as global uncertainties remain elevated. This would represent a shift in tone from the usual tightening bias seen in policy statements and may result in CAD weakness. USD/CAD is higher after breaking a 4-month long bearish channel, however the upside is likely to be limited. USD/CAD sees the 100- and 200-day SMA’s converge around parity (also a key psychological level) that may provide resistance. With the change in tone largely priced in, the risk is for the BoC to remain hawkish which could see CAD resume is longer trend of strength. In our view, even a neutral stance by the Bank at a time when other major central banks are pursuing easy monetary policy should favor the currency in the longer term and we would prefer to fade Loonie weakness.
U.S. equities finished the day marginally higher after spending most of the day in negative territory after earnings releases. The DJIA managed to close the day up by about 0.02% while the S&P 500 edged higher by +0.03%. Commodities were mixed with the precious metals gold and silver currently higher by about +0.38% and +1.08% respectively while crude oil fell by nearly -1.47% at time of writing.
Data Watch
Data flow remains light heading into the Asia/ Pacific session with only Australian September Conference Board leading index and Japanese small business confidence for October on the economic calendar.
Bank of Canada in focus
Tomorrow will see the Bank of Canada rate announcement and we expect the Bank to keep rates on hold at 1%. The key focus will be on the tone of the statement and markets are expecting a shift in stance from hawkish to neutral. Recent CPI figures out of Canada came in softer than expected and comments by the BoC Governor Carney suggest that tomorrow’s statement may take a more cautious stance as global uncertainties remain elevated. This would represent a shift in tone from the usual tightening bias seen in policy statements and may result in CAD weakness. USD/CAD is higher after breaking a 4-month long bearish channel, however the upside is likely to be limited. USD/CAD sees the 100- and 200-day SMA’s converge around parity (also a key psychological level) that may provide resistance. With the change in tone largely priced in, the risk is for the BoC to remain hawkish which could see CAD resume is longer trend of strength. In our view, even a neutral stance by the Bank at a time when other major central banks are pursuing easy monetary policy should favor the currency in the longer term and we would prefer to fade Loonie weakness.
U.S. equities finished the day marginally higher after spending most of the day in negative territory after earnings releases. The DJIA managed to close the day up by about 0.02% while the S&P 500 edged higher by +0.03%. Commodities were mixed with the precious metals gold and silver currently higher by about +0.38% and +1.08% respectively while crude oil fell by nearly -1.47% at time of writing.
Data Watch
Data flow remains light heading into the Asia/ Pacific session with only Australian September Conference Board leading index and Japanese small business confidence for October on the economic calendar.
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