2013-01-22 07:40 (UTC)
XE Market Analysis
The BoJ decision dominated the Asian session. It announced open-ended asset purchases that will start from January 2014 and a 2% CPI target for the medium term. The decision was broadly in line with expectations. JPY ended the session on a firmer footing as profit taking set in, but EUR, GBP and AUD were firmer overall after holding on to gains fueled by the JPY crosses. The Eurogroup meeting saw Dutch Finance Minister Dijsselbloem elected as head of the Eurogroup. There was support for Greece's EUR 9.2 bln aid tranche, which will be formally agreed in a week and Juncker said a bailout for Cyprus could be agreed in March.[EUR, USD]
EUR-USD broke to the 1.3360 area after EUR-JPY demand boosted it from the 1.3320-30 area after the BoJ policy announcement. The EUR held on to gains despite a EUR-JPY drop from the 120.20 area to 118.65 on profit taking, with USD-JPY losses keeping the dollar on the backfoot in relatively thin Asian trade. Overall, the EUR maintains a dip buying mentality and longs are still looking to evaluate price action into the 1.3400 area, which has now held for several sessions.[USD, JPY]
USD-JPY pulled back from 89.90 to 89.30 ahead of the BoJ announcement. Thereafter it posted a kneejerk high of 90.15 after it announced open-ended asset purchases and a 2% inflation target. The lack of follow through over 90.00 fueled profit taking by longs and it headed to 88.89 lows. Some bargain hunting was noted under 89.00, but fund names were reluctant to commit to positions ahead of the press conference from BoJ Governor Shirakawa. The BoJ move was welcomed by Economics Minister Amari and Finance Minister Aso. Both the government and BoJ wanted to meet the 2% target as quickly as possible, but there will be no change in BoJ law at this time, said Aso.[GBP, USD]
Cable remains weak after it broke the 200-dma on Friday and fell to 1.5805 after Monday's London close. Light short covering has helped it back over 1.5850 in Asia, but the underlying trend and weak fundamentals encourage selling pressure on upticks. Adding to the poor outlook are triple dip recession fears as the cold snap in the U.K. threatens to impact output. EUR-GBP eyes a move on 0.8450 option barriers and it moved back above 0.8400 and extended to new trend highs over 0.8430 by early Europe.[USD, CHF]
EUR-CHF has met buying interest on dips into 1.2400 and below as longs target a move back over the 1.2500 level. However, since it pulled back from new trend highs around 1.2570 last Friday it has maintained a more defensive tone as short term technicals correct overbought levels. Intra-day movement should be confined to a 1.2400-1.2470 range, but a break out of these levels should fuel stop loss activity.[USD, CAD]
USD-CAD is underpinned since it broke above 0.9900 on Friday and extended to 0.9945. On the whole, a sideways trading theme has been noted since the start of the week ahead of the BoC policy decision. Movement is contained by short term bids at 0.9900 and residual option related offers ahead of 0.9950 and late December highs at 0.9970. Note, however, that the recent break higher has reinforced the underlying trend, leaving near-term bias on the topside.