Trading news

BoJ left stimulus unchanged, USD offered, Swiss KoF disappoints

- Bank of Japan took Markets by surprise deciding to give itself more time to reach 2% target
- We expect the EUR to weaken  further against yen as ECB and BoJ recently moved in opposite direction with their respective QE
- EURUSD recovering from Fed statement and currently testing 1.10 as we believe that a move in March remains the most likely option
- Switzerland's October KOF Economic Barometer of leading indicators fell to 99.81 from 100.4 vs. an expected 100.1 expected. This drop was led by weaknesses in the banking, construction and tourism industries.
 
Kuroda took the market by surprise earlier this morning as the BoJ decided to give itself some room to reach the 2% inflation target. Governor Kuroda also maintained his optimistic view about the Japanese economy, arguing that the pickup in inflation is underway and that the economy is still on the right track. Initially, USD/JPY strengthened to 121.50 amid the BoJ’s decision, but the pair quickly returned to below the 121 threshold as traders digested the new information. The yen is also gaining momentum against the single currency with EUR/JPY back below the 133 level. On the downside, the low of 131.60 from October 29th will act as support. We would have to go back until April 14th to find the previous support (126.10). We expect the euro to weaken further against the yen as the ECB and the BoJ recently moved in opposite directions with their respective quantitative easing programmes.
 
On the data front, the Japanese unemployment rate remained stable at 3.4% in September. Headline CPI stayed flat, while the core gauge contracted -0.1%y/y in September, above market expectations of -0.2%y/y.
 
On the equity front, Japanese shares are blinking green this morning with the Nikkei and the Topix index up 0.78% and 0.72% respectively. In mainland China, equity returns are mixed - Shanghai was down 0.14% and Shenzhen edged up 0.02%, while Hong Kong’s Hang Seng dropped 0.36% and Taiwan’s Taiex fell 0.20%. In Europe, futures are trading in positive territory with the Footsie up 0.24%, the DAX up 0.42% and the SMI up 0.35%. However, the broader Euro Stoxx 600 is down 0.13%.
 
EUR/USD is recovering from the hit it took on the release of the Fed’s statement and is currently testing the $1.10 resistance level. The dollar is also running out of steam as it moved below the 97 threshold for some time after reaching 97.82. We still believe that a move in March remains the most likely option as the data since the September meeting has been anything but supportive of a tightening of the US monetary policy. But the hawkish tone used by the Fed in the statement makes us wondering whether a December lift-off is back on the table. The probabilities extracted from the swap rates show that a 45% chance of lift-off in December.
 
***Peter Rosenstreich, Head of Market Strategy: "In a disappointing read Switzerland's October KOF Economic Barometer of leading indicators fell to 99.81 from 100.4 vs. an expected 100.1 expected. This drop was led by weaknesses in the banking, construction and tourism industries. The reports suggests that the “competitiveness of Swiss companies deteriorated further in October” as the “Swiss economy continues digesting the exchange rate shock.” Currently the policy options available to the SNB to support growth and drive inflation are limited. Swiss National Bank policy maker, Fritz Zurbruegg, recently reiterated that the franc is overvalued and would sell the CHF should conditions deteriorate further. However, with the SNB’s balance sheet close to 90% for GDP, it's unlikely that policymakers can honestly utilise direct FX intervention as an effective policy tool. The ECB signalling its intentions to ease policy further has generated mild but sustained downside pressure on EURCHF. It’s likely that should the ECB adjust interest rates deeper into negative territory the SNB will be forced to counter with similar actions. Given the sustained economic weakness in Switzerland and impending ECB policy actions, the real question is not if, but rather when will the SNB act. January’s events tell us that the SNB will strike proactively. Given this expected policy action we remains negative on the CHF against the USD and EUR.”***
 
Today traders will be watching third quarter preliminary estimates of Spanish GDP; euro zone and Norway September unemployment rate; euro zone’s CPI estimate for October; trade balance from South Africa; employment cost index, personal income; PCE deflator, Chicago purchasing manager and Michigan sentiment index from the US.

Friday, 30 Oct, 2015 / 9:01

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Source : http://en.swissquote.com/fx/news

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