BoJ Unchanged while the Buck Splutters

October 8, 2015

BoJ Unchanged while the Buck Splutters:
Ah the cherry blossom filled Japanese countryside. So peaceful… Now lets ruin it with some currency talk shall we!

Yesterday saw the Bank of Japan leave monetary policy unchanged, giving a slight boost to the Japanese Yen in the process. With no change to their famed quantitative easing program largely expected, the USD/JPY sellers looking for a miss were left out in the cold.

Giving some traders a reason to look for a miss in expectations and play for a USD/JPY pop, was a belief that recent weakness in Japanese data would push the central bank to prolong its QE program further.

“There is absolutely no change to our stance that we will steadily implement quantitative and qualitative easing to achieve the 2% inflation target at the earliest possible time.”

Kuroda did sort of ignore the fact that exports and commodity prices are both falling and actually pushing the Japanese economy further away from the bank’s 2% inflation target for next year. There is definitely more action to come in this pair but for now the market is happy to buy what was said and focus on USD weakness and the technicals.

USD/JPY Daily:
uj5
Click on chart to see a larger view.

Compare this chart with the one in yesterday’s BoJ Preview and you can see the nice reaction off the USD/JPY trend line resistance level that we’ve been keeping an eye on over the last few weeks.

With the BoJ statement largely in line with expectations, most of this move is USD weakness related, with technical resistance providing the catalyst for the selling. Following the path of least resistance here seems the safer play for now.

———

On the Calendar Thursday:
GBP MPC Official Bank Rate Votes
GBP Monetary Policy Summary
GBP Official Bank Rate

USD Unemployment Claims
GBP BOE Gov Carney Speaks
USD FOMC Meeting Minutes

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Chart of the Day:
Coming off the back of yesterday’s Bank of Japan monetary policy statement and into tonight’s Bank of England bank rate decision, we really had nowhere else to look for today’s chart of the day than ‘Guppy’ – GBP/JPY.

GBP/JPY Weekly:
gj1
Click on chart to see a larger view.

I’ve included the weekly chart here for longer term context around the trend lines that are now in play.

Remember our trend line subjectivity discussion? Well here we are again, with 2 variants of the weekly trend line depending on how you look at it. I’ve included both, with the solid line being the 1 that is currently in play.

GBP/JPY Daily:
gj2
Click on chart to see a larger view.

Zooming into the daily, I’ve highlighted a possible level of interest that price is approaching. Here we have a confluence of both re-tested trend line resistance as well as a horizontal zone that has seen plenty of reaction in the past.

This is the type of zone that is often good for a short term bounce off of, but rarely do they hold when faced with a momentum move into them like we are seeing here with the Pound strength.

If you like this setup, just make sure you are banking your pips and not standing on the tracks waiting to get hit by the train that you’re stepping in front of.

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Dane Williams – @VantageFX

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