BoJ’s interest rate decision ahead, Japan's CPI

The slowdown of Japan’s CPI rates tends to justify BoJ’s hesitancy to normalize its ultra-loose monetary policy settings, currently in place. Hence, we highlight the release of BoJ’s interest rate decision due out during tomorrow’s Asian session. The bank is widely expected to remain on hold at -0.10% and currently JPY OIS implies a probability of 92.6% for such a scenario to materialize. We tend to expect the bank to maintain its dovish tone given the slowdown of the CPI rates which in turn may weaken JPY further. To expect a tweak in the bank’s dovish tone, we would require a relative stabilization of the CPI rates in order to show that it is sustainable, something that does not seem to be the case, at least not yet. On the other hand, the market expects the bank to deliver its first rate hike in decades in the June meeting, and should the bank want to start preparing the markets for such a scenario, we may see BoJ allowing for some hawkish innuendos to escape that may strengthen JPY.

USD/JPY seems to have hit a ceiling at the 148.25 (R1) resistance line. Yet there is still an upward trendline guiding the pair and given that the RSI indicator remains above the reading of 50, we tend to maintain our bullish outlook for the pair, despite the relative stabilisation of its price action over the past few days. Should the bulls maintain control over the pair, we may see it breaking the 148.25 (R1) resistance line and aim if not breach the 149.70 (R2) resistance level. Should the bears take over, we may see USD/JPY breaking the prementioned upward trendline in a first signal that the upward motion has been interrupted and aim if not reach the 146.30 (S1) support base.

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After an easy-going Monday, on Tuesday’s Asian session, we note the release of Australia’s NAB indicators for December and Japan’s chain store sales growth rate for December.

AUD/USD edged higher on Friday aiming for the 0.6620 (R1) resistance line. We note the downward trendline which was put to the test during today’s early Asian session, and tend to maintain a bearish outlook for the pair. Yet we would note that the RSI indicator below our 4-hour chart remains near the reading of 50, implying a rather indecisive market that may allow the pair to stabilise. Should the selling interest to be renewed we would expect a lower trough than the last one thus we require the pair to break the 0.6515 (S1) line and aim for the 0.6400 (S1) line. For a possible stabilisation of the pair a breaking of the prementioned downward trendline would be required signalling the interruption of the downward movement and for a bullish outlook AUD/USD has to break also the 0.6620 (R1) line and aim for the 0.6725 (R2) barrier.

As for the rest of the week:

On Tuesday we note the release of Eurozone’s preliminary January consumer confidence and New Zealand’s CPI rates for Q4. On Wednesday, we note the release of the preliminary PMI figures of Australia, Japan, France, Germany, the Eurozone and the US for January, while we also get Japan’s trade data for December and on the monetary front we note from Canada the release of BoC’s interest rate decision. On Thursday, we get Germany’s January Ifo indicators, Canada’s Business Barometer for January, and from the US we get December’s durable goods orders for December and weekly initial jobless claims figure, while we highlight the release of the preliminary US GDP advance rate for Q4. On a monetary level, we note the release from Norway Norgesbank’s, from Turkey CBT’s and ECB’s interest rate decision. Finally, on Friday, we note the release of Japan’s Tokyo CPI rates for January, Germany’s GfK consumer sentiment for February and from the US the consumption rate and the Core PCE Price index growth rates, both being for December.