Yen in focus ahead of the BoJ

As we approach the business end of the week, there are a couple of currencies I’m watching closely at the moment. 

USD/JPY has been resilient all week and has managed to get some good buying off the 102 level which it tested on April 25. The pair managed to rally to 102.79 and remains steady ahead of the BoJ. On the other side of the equation, heading into the business end of the week for the USD, traders don’t want to be caught out on the wrong side of the greenback. General consensus is for a vast improvement in data this week, particularly the non-farm payrolls which are expected to print a figure north of 200,000.

Meanwhile it’s also a big day for the yen with the BoJ decision due out. While no change in policy is expected, we could hear some changes to economic projections given the vast improvement we have seen in data recently. This would be highlighted in the outlook report due out at 4:00pm AEST. Of course the press conference will also carry some weight, but because Kuroda has been on the wires a lot recently, nothing new is expected. The first month of the sales tax hike is also coming to an end and it will be interesting to see how it impacts data going forward.

We also have Japan’s industrial production and manufacturing PMI due out. Out of the US later we have ADP non-farm payrolls, GDP and the Fed to look out for. Should we continue to see a recovery in the US economy then the USD might extend its gains and push USD/JPY higher. To the upside, the level to look out for will be overnight highs in the 102.79 region. To the downside, 102 will be a key level which most traders will be expecting to hold.

Euro at risk of further downside

The euro also remains in focus after coming off significantly on the back of some disappointing data out of the region including German CPI, Spanish unemployment and private loans. This initiated the slide in EUR/USD from around 1.388 and is now down to around 1.381. The move was also exacerbated by the fact that the EU imposed further sanctions on Russia. Meanwhile Putin has started about looking reconsidering Russia’s energy supplies to Europe.

The single currency is facing some real tests at the moment and after Mario Draghi’s comments on the strength of the euro recently, then we cannot rule out further downside. A close below 1.38 could signal further weakness is on the way. We have key Europe inflation data due out later today and it’s expected to rebound from 0.5% to 0.8%. Some traders will now be expecting the disappointing German CPI print to cap the rebound and hence euro downside.

fx30042014

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.

Find articles by analysts