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This morning, sentiment on risk improved after the BOJ raised its program of asset purchases. EUR/USD rebounded off yesterday’s lows. Markets are convinced that this already marks the start of a new up leg in risky assets and in EUR/USD. Assume that it will take more time to digest the recent sharp moves.
The eco calendar in Europe is very light and the US eco calendar (Housing data) has probably also not enough weight to kick start a new trend. So assume that it will be difficult for EUR/USD to already break above the 1.3172 range top short-term.
The longer term trend remains EUR/USD restricted.
Global Markets seem to be taking a breather, perhaps re-evaluating prices now that the emotion from the FOMC stimulus package has cooled down a bit. When Mr. Bernanke introduced QE3 and exceeded traders' expectations, markets went a bit crazy. Compounding the prior week's introduction of Outright Monetary Transactions from the ECB and the German Court ruling on the ESM and EFSF, traders through risk out the window.
In other cross rates, the recent outperformance of EUR/USD against the GBP/USD halted. EUR/USD is more sensitive to the global trend of the dollar and/or the swings in global sentiment on risk than is the case for cable.
Yesterday’s setback also changed this order and triggered a setback in EUR/GBP too. UK eco data (CPI) were gain not important for EUR/GBP trading. Today, sterling traders will keep an eye at the minutes from the previous bank of England meeting. However, the BOE has time to November meeting to make up its mind on further policy stimulation and thus don’t expect market moving new info.
Over the previous days, USD/JPY had recorded some remarkable gains even as the US dollar was under pressure across the board. Higher core bond yields and a positive sentiment on risk kept the pair well bid. This move stalled yesterday and USD/JPY settled in a sideways range mostly in the 78.60/70 area. However, later in the session markets started to look forward to BOJ meeting as speculation on more BOJ easing was still lingering. This ‘concern’ proved justified. The BOJ decided to ease its policy by raising the program of Asset purchases by 10 trillion yen. This was more than the consensus in the market. Markets are hoping to see the JPY break the big figure of 80. The pair is at 79.66 after the announcement.
The bank also indicated that the period of relatively high growth in the first half of 2012 has come to a pause and it also expects the Y/Y rate of the CPI to remain at around 0 percent for the time being. So, there is still some work to do to reach to 1.0% inflation target. In this context, further easing was justified.
Overall this could be a sleepy day for the markets.