BoJ’s interest rate decision in focus

USD continued to gain against a number of its counterparts yesterday for a fourth consecutive day and is nearing pandemic high levels. The markets’ hawkish expectations for the Fed and the wider uncertainty in the markets tended to support the greenback in yesterday’s trading session as well, while gold’s price got a brief pause despite the strengthening of the USD. US stockmarkets remained well in the reds as worries for a global economic slowdown are present among investors given the uncertainty surrounding the investment environment. Today we may see investor’s attention turning towards the earnings releases due out and we highlight Facebook (#FB), Ford (#F), Glaxo Smith Klein (#GSK), eBay (#EBAY) and Harley Davidson (#HOG), among others. Back in the FX Market the common currency maintained its downward motion against the USD yesterday and fundamentally we tend to highlight the risks arising for the economic growth of the Eurozone from the war in Ukraine and the sanctions imposed on Russia. In the latest twist of the developments, we note that Russia cut gas to Poland, and it may be the case that it will halt supplies also to Bulgaria, unless their debt is settled in Roubles, yet that would be considered a breaking of European sanctions on Russia for its invasion in Ukraine.

Today for EUR traders, we note the release of Germany’s and France’s consumer confidence indicators for May and April respectively, yet the main point of interest may be ECB President Lagarde’s and ECB board member Lane’s comments. Should the two policymakers reiterate the possibility of a rate hike in summer we may see the EUR gaining some ground, while should caution and hesitation be expressed for the tightening of the bank’s monetary policy, we may see the EUR weakening at a an even faster pace. Across the Channel, the pound is also sinking against the USD reaching levels not seen since July 2020, while it’s also weakening against the EUR but not JPY. Overall, the weakness of the pound seems to be related to market worries about the growth prospects of the UK economy, while debt worries are also present given that the UK Government has borrowed 20% more than was budgeted for the financial year 2021/22. During Thursday’s Asian session, we highlight BoJ’s interest rate decision. It should be noted that JPY has remained at rather low levels given BoJ’s persistence on its ultra-loose monetary policy and defending its yield curve control at low levels by buying JGB’s. Tomorrow the bank is expected to remain on hold, keeping the interest rate unchanged at -0.10 % and JPY OIS imply a probability of 86.62% for such a scenario to materialize. It should be noted that besides the interest rate decision the bank is also scheduled to release its quarterly growth and inflation forecasts. Should the bank maintain a dovish tone, we may see JPY weakening further as despite the acceleration of inflationary pressures in the Japanese economy the bank seems to maintain its supportive role.

USD/JPY seems to be stabilizing somewhat during today’s Asian session just below the 127.70 (R1) resistance line. We tend to maintain a bearish outlook for the pair as long as it remains below the downward trendline incepted since the 22^nd of April, yet we must note that the pair’s price action is currently putting the prementioned downward trendline to the test. The RSI indicator remains near the reading of 50, which would imply some stabilisation as well as a rather indecisive market about the pair’s direction. Should the market express an intense buying interest we may see the pair clearly breaking the prementioned downward trendline and take aim for, if not breach the 128.70 (R1) resistance line. Should prementioned downward trendline continue to guide the pair, we may see it breaking the below the 127.70 (S1) support line and aim if not breach the 126.75 (S2) support level.

GBP/USD maintained a clear downward movement breaking the 1.2670 (R1) support line, now turned to resistance. We tend to maintain the bearish outlook for the pair as long as it remains below the downward trendline incepted since the 22^nd of April. Please note though that the RSI indicator below our 4-hour chart is below the reading of 30, which may imply that the pair is at oversold levels and may be ripe for a correction higher. On the other hand, the lower band of the Bollinger bands may imply that there is still room for the bears to advance further. Should the bears actually maintain control we may see the pair breaking the 1.2510 (S1) support line which provided support in July 2020 and aim for the 1.2360 (S2) support level. On the flip side should the bulls say enough is enough and take over, as first sign of a trend reversal we would expect the pair to break the prementioned downward trendline as well as the 1.2670 (R1) resistance line. Should R1 be broken we may see the pair taking aim of the 1.2765 (R2) resistance line that reversed the pair’s upward movement during yesterday’s Asian session.

USD/JPY 4시간 차트