BOJ Surprises Forex Market with Interest Rate Cut and Bond Purchases

The yen is taking center stage today following the completion of the Bank of Japan two-day policy meeting. Traders were anticipating further calls for intervention but were surprised to hear of a cut in the interest rate and a new fund to purchase assets.

Economic News

USD – Greenback Gains on Renewed Euro-Zone Concerns

The U.S. dollar gained versus the EUR Monday as renewed concerns regarding euro zone debt problems weighed on the common currency. The dollar also strengthened versus the JPY following the announcement by the Bank of Japan to cut interest rates and the creation of a fund to purchase assets.

The greenback held on to gains despite a release of mixed economic data. While pending home sales showed an increase of 4.3% in August, factory orders fell 0.5%, a worse than expected result.

Today traders should follow the release of the ISM Non-Manufacturing PMI at 14:00 GMT which is expected to show a slightly better reading than the previous month.

EUR – EUR Falls on Expected Budgetary Concerns

The EUR fell from a six-month high against the U.S. dollar Monday declining below $1.3700, as renewed debt concerns weight on the common currency. The drop followed the release of further details about the extent of Ireland’s budget deficit as well as an announcement by the European Central Bank (ECB) regarding the extent of new government bond purchases, which was at the highest level since June.

The purchasing is intended to assist governments like Ireland and Portugal that must undertake sever budget cuts which may stump their economic recovery. According to an Irish newspaper, the government’s budget required budget cuts for December stand at EUR4.5 billion ($6.2 billion).

Late Monday afternoon, the EUR was at $1.3690 from $1.3784 from late Friday. In today’s early trading, the pair stands at $1.3660. The EUR was at Y114.20 from Y114.81. The U.K. pound was at $1.5837 from $1.5841.

JPY – Yen Weakens on Surprise Interest Rate cut

The Japanese Yen weakened against the U.S. dollar following a surprise reduction in the interest rate during the Bank of Japan policy and enacting of further credit easing measures. The bombshell announcement allowed for gains in the yen versus the major currencies and a reversal of the negative sentiment.

The USD/JPY rose to a high of 83.97 in today’s early Asian trading from 83.36 in New York yesterday, Japan’s currency is trading at 114.79 per EUR from 114.08.

The overnight call rate was reduced below 0.10%. Few analysts predicted the BOJ would cut the rate from 0.10%. The speculations surrounding the policy statement will surely make the Yen one of the most exciting currencies for trading today.

OIL – Stronger Dollar Weighs on Oil Prices

Crude- Oil futures settled slightly lower Monday as a stronger dollar and weak equity markets pressured oil prices. Light, sweet Crude Oil for November delivery settled 11 cents, or 0.1%, lower at $81.47 a barrel on the New York Mercantile Exchange after hitting an intraday high of $82.42 earlier in the day.

Futures declined yesterday after stocks fell for the third time in four days and the U.S. dollar advanced against the EUR. A stronger dollar is making the commodity more expensive to purchase as it is denominated in dollars. Putting further pressure on the commodity is the expectation that an Energy Department report tomorrow will probably show crude stockpiles rose last week.

For today traders should follow any news from the U.S. as the direction of the USD will likely affect oil prices.

Technical News

After yesterday’s decline some correction may be expected for the pair in the short term. The RSI for the pair is floating in the oversold territory on the two hour chart while a bullish cross is evident on the hourly and 4 hour charts’ Slow Stochastic. Going long with tight stops may be advised for today.
The pair is currently range trading between 1.5790 and 1.5830, with most indicators in neutral territory. Waiting on a clearer direction for the pair may be advised for today.
The pair seems to be exhibiting mixed signals. While the daily chart’s RSI is floating in the oversold territory with a bullish cross evident on the chart’s Slow Stochastic as well as the MACD, the 2 hour chart’s Slow Stochastic is showing a bearish cross with the 2 hour chart RSI floating near the overbought territory. Waiting on a clearer signal for the pair may be advised
The pair may be seeing some upward correction today as the pair’s RSI is floating in the oversold territory on the 4 hour and daily charts while a bullish cross is seen on the 4 hour charts Slow Stochastic and the hourly MACD. Going long for the day may be advised.

The Wild Card

The RSI for the pair is floating in the oversold territory on the 4 hour and 8 hour charts with a bullish cross seen on the 8 hour chart’s Slow Stochastic. Furthermore, a breach of the lower Bollinger Band is evident on the hourly, 2 hour, 4 hour and 8 hour charts, indicating an impending upward movement. Forex traders are advised to go long for the day.

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