BoJ ends decades-long negative rates policy

BoJ hiked rates today by 10 basis points, and in its decision ended the decades-long negative rates policy as it stated that “The Bank considers that the policy framework of Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control and the negative interest rate policy to date have fulfilled their roles.”. On the other hand, the bank has also stated that it will continue with its asset purchases indirectly maintaining rather loose financial conditions in the Japanese economy. It’s characteristic that despite the bank’s historic shift, JPY weakened, albeit some may also mention a “buy the rumor—sell the fact” market behavior. We expect JPY to remain under selling pressure currently.

On a technical level USD/JPY regained their confidence and the pair broke the 149.55 (S1) resistance line now turned to support. We maintain our bullish outlook yet would like to issue a warning for a possible correction lower, given that the RSI indicator has breached above the reading of 70, which on the one hand highlights the strong bullish sentiment of the market for the pair, yet at the same time may also imply that the pair is in overbought territory and ripe for a correction lower. Similar signals are being send also by the fact that the price action of the pair has breached above the upper Bollinger band. Should the bulls maintain control, we may see the pair breaking the 150.85 (R1) resistance line, thus opening the way for the 152.00 (R2) resistance level. Should the bears take over, we may see the pair breaking the 149.55 (S1) support line , the upwards trendline guiding the pair, signaling that the upward motion has been interrupted and taking aim of the 148.05 (S2) support level.   

In the land of the down under, RBA remained on hold as was widely expected keeping the cash rate target unchanged at 4.35 per cent and the interest rate paid on Exchange Settlement balances unchanged at 4.25 per cent. Yet in the accompanying statement, the bank also seemed to ease on its hawkishness as it stated that “The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.” AUD tended to weaken from the release, and we see the case for the Aussie to be under selling pressure given that the monetary outlook direction seems to have shifted.

AUD/USD dropped testing, but not breaking the 0.6515 (S1) support level. At the same time, we note that the RSI indicator nears the reading of 30, implying a bearish market sentiment in the market. Yet for a clearcut bearish outlook we would require the pair to break the 0.6515 (S1) support line and take aim for the 0.6400 (S2) level, while if the bulls take over, we may see the pair reversing course, breaking the 0.6620 (R1) line and aiming for the 0.6725 (R2) resistance hurdle. 

In the FX market today we also highlight the release of Canada’s CPI rates for February and the headline rate is expected to accelerate on a year-on-year level. Should the expected acceleration be materialised, and possibly accompanied by an acceleration of the core rate, we may see the Loonie getting some support as BOC’s hawkishness could intensify.

Other highlights for the day:

Today in the European session, we note the release of Germany’s ZEW indicators for March, while on the monetary front, ECB Vice President De Guindos speaks. In the American session, we get from the US the number of building permits and House starts for February, while later on we get New Zealand’s current account balance for Q4. Oil traders on the other hand, may be more interested in the release of the API weekly crude oil inventories figure. During tomorrow’s Asian session, we get from China PBoC’s interest rate decision.  

USD/JPY H4 Chart

Support: 149.55 (S1), 148.05 (S2), 146.45 (S3)

Resistance: 150.85 (R1), 152.00 (R2), 153.80 (R3)

AUD/USD H4 Chart

Support: 0.6515 (S1), 0.6400 (S2), 0.6270 (S3)

Resistance: 0.6620 (R1), 0.6725 (R2), 0.6870 (R3)

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