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Asia Recap: BoJ a distraction, let the real ECB show begin...

FXStreet (Bali) - It was a subdued Asian session, in which moves were contained within familiar levels, with the Aussie ending as the top performer, while the Yen also exhibited strength.

AUD/USD found some shy follow through, building up on recent gains after Wed's bullish engulfing candle. While gains were limited to 0.9361, the pair still retains a bullish bias. Today's catalyst to buy some Aussies was an in-line retail sales read (+0.4%), with a slightly better picture in the trade balance deficit, which fell lower-than-expected, standing at -1359M in July vs -1510M in June.

USD/JPY managed to initially absorb some topside interest to buy yens by being paid as high as 104.93, however, the BoJ monetary decision (unchanged), acted as an excuse to sell both the Nikkei 225 (-0.22% ahead of the close) and the Yen crosses, with USD/JPY testing 104.75, where is trying to form an intraday base.

JPY trades have been more active buying the currency in the past 24h. Firstly, during yesterday's Asian hours we saw a classic 'buy the rumor, sell the fact' after days of quicker GPIF reforms talk, while today, a more consistent argument to keep the USD/JPY pressured arose, following yesterday's comments from the newly appointed Minister of Health and Welfare Mr. Shiozaki.

As Reuters reports: "Shiozaki said he wanted to proceed as quickly as possible with governance reform at the world's biggest pension fund. But he said he would leave the details of asset allocations "to the experts". Some market players also question whether Shiozaki plans to go beyond market expectations in reducing bonds and raising risk assets such as stocks and foreign assets."

NZD/USD saw limited action, with sellers protecting the 0.8330-40 resistance area, despite being tested multiple times. Steady demand in AUD/NZD is undoubtedly limiting gains in NZD. With regards to EUR and GBP, two currencies that typically show muted moves in Asia, the rates were kept unchanged at 1.3145-50 and 1.6455-60 respectively, ahead of the ECB and BoE monetary policy decisions.

The focus in Europe will be the BoE and ECB policy announcements. While no change is expected from the former, the ECB has several options on the table. According to TDS European Research Team, their base case, to which a 45% chance is assigned, would be to see the ECB cutting both deposit and refi rate 10bps. The other option, which they give a 40% chance, is all rates unchanged, while the least likely scenarios would be the ECB cutting only the refi rate (10%), and both deposit and refi rate cut 15-20bps (5%).

Main headlines in Asia

Shiozaki throws cold water on hopes for quick GPIF reform

Japan Foreign bond investment increased to ¥503.7B in August 29 from previous ¥-609B

Japan Foreign investment in Japan stocks declined to ¥-110.7B in August 29 from previous ¥174.6B

Aus retail sales as expected, trade deficit beats estimates

BoJ retains plan for 60-70tln yen annual rise in monetary base

NZD/USD sitting in a range above 0.83 ahead of US data

NZD/USD is trading at 0.8323, mostly unchanged on the day; the pair's movements are limited by daily high at 0.8330 and low at 0.8315.
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EUR/JPY hesitant at 137.80 ahead of ECB

EUR/JPY is glued to the narrow range limited by 137.97 (Asian high) on the upside and 137.74 (Asian low) on the downside; Currently tte cross is trading at 137.80
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