Friday, 5 April 2013

Markets Busy on Central Bankers' Day

Ralph Shell, Excel Analyst

Yesterday, Thursday, was an especially busy day for the Central Bankers.  At 6.30 a.m., London time, the new BOJ Governor Kuroda gave the first Central Bankers' Day report.  Recently there had been skeptics, fearful the Bank of Japan might revert to the previous timid policies; this, according to a Nikkei report, was untrue:

"We cannot achieve the inflation target as long as we take policy steps in an incremental manner" as the previous BOJ leadership had done, Kuroda said at a press conference after the end of the BOJ's two-day Policy Board meeting.

The amount of funds the BOJ plans to provide to the financial markets under a new monetary easing scheme is "large beyond the common sense," he added.

Kuroda, however, said, "We'll adjust (monetary policy) without hesitation if necessary, while monitoring economic and price conditions."

This proved to be the Central Bank's version of shock and awe.  The early trade in the yen was near 92.70 versus the USD, but the yen quickly depreciated to above 96.20 yen to the USD.  Since sinking to a yearly low versus the USD on March 12 at 96.70, the yen had laboriously rallied to 92.60.  The three weeks of gains have been wiped out in one day.  Looking at the monthly chart, the USDJPY is breaking into new territory, with the next resistance now projected to be the 101.50 area.

USDJPY Monthly Forex Chart 04 April 2013, Excel Markets Forex Broker

We have noted that speculators have been huge spec longs in the yen futures.  Most of these trader have sizable profits.  Since currencies are often markets with lengthy trends, this may not be over.  Often when traders have big profits, they become more active in related futures contracts.

USDJPY Daily Forex Chart 04 April 2013, Excel Markets Forex Broker

Mervyn King and the boys at the Bank of England were the next to announce the results of their meeting.  Though concerned about the current state of the British economy, the Bank of England is keeping the rates unchanged nor are they increasing the Asset Purchase Facility above the current £375B.  Perhaps King is waiting for the incoming Governor Carney to try some new tactics.

It was then the European Central Bank turn to continue.  They did so by keeping their interest rate unchanged at .75%, the highest in the developed world, and giving some mixed signals.  The President of the European Commission, Barroso, sounded like a member of the Pollyanna Book Club, claiming the worst of the crisis is over.

ECB President Draghi disagreed with this assessment. He spoke of economic weakness continuing during the first quarter, and there are still downside risks going forward.  The ECB is monitoring data and stands ready to act.  Draghi did say the euro is not a temporary group.  Like the Hotel California, once in, there is no way out.  The mixed signals by Draghi bestowed the markets with some volatility.  Talk of economic weakness sent the market lower to 1.2745 which was then followed with a rally to 1.2880.

The market activity is shown on an hourly chart below.  In the old days, when trades were executed by a broker on the floor, this was known as 'a deck cleaner', when both buy and sell stops were cleaned out of the open order deck.

Turning to the US, Central Bankers Bernanke, Evans and Yellen are all speaking, no doubt with grave concern about the US unemployment rate.  As we have observed, the US economic data has been falling short of expectations; that trend continued today with the Initial Jobless Unemployment claims number.  It came it at 385K, well above the expected 353K, and the highest weekly number since late November.

Today, Friday, there are major US Reports.  The unemployment rate number, estimated to be unchanged at 7.7%, the NFP number currently estimated at 190K, and, finally, the US trade balance.  Should the numbers continue to be less than anticipated, will this have an effect on the USD?  Remember in the futures market speculators are big net USD longs.

Part of the appeal of the USD has been the heartier US recovery compared to other developed countries.  If the US GDP growth is slowing, does this mean the USD loses some appeal?  Sometimes it is better to just wait and see how a market reacts to the news.  We plan on doing that.
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