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• The Bank of Japan (BOJ) kept the interest rates and other policy tools unchanged.
• The status quo decision has so far not had any impact on the USD/JPY pair.
• The currency pair’s close above 112.89 amid risk-on in the equities put the bulls back in a commanding position.

The USD/JPY is seeing little action after the status quo BOJ decision.

The Japanese central bank voted 8 to 1 to leave unchanged its pledge to increase the monetary base at an annualized pace of JPY 80 trillion.

Further, it voted 7 to 2 to keep interest rates unchanged and also made no changes to forward guidance, adopted in July that pledges to keep interest rates extremely low for an extended period.

However, its quarterly report said that risks to price outlook are skewed to the downside and the effects of sales tax hike pose risks to the BOJ’s baseline scenario. It also cited protectionism as a risk to the economic outlook.

So, it seems safe to say that the BOJ is unlikely to move the needle on interest rates or QE program any time soon. Hence, for the USD/JPY, the path of least resistance is on the higher side.

Technically speaking, the pair is looking north, having closed above 112.89 yesterday. At press time, the currency pair is trading at 113.20, having clocked a three-week high of 113.33 earlier today. 

USD/JPY Technical Levels

• The falling wedge breakout seen in the USD/INR 4-hour chart indicates that the pullback from the record high of 74.48 reached on Oct. 11 has ended and that level could be put to test in the next few days.
• The RSI on the 4-hour chart is holding in bullish territory above 50.00 and is looking north.
• The falling wedge breakout also adds credence to the bullish view put forward by the still ascending 5-week and 10-week EMAs. Indeed, the pair has produced a strong bounce from the bullish 5-week EMA.
• Acceptance below the 200-candle EMA on the 4-hour chart would weaken the bullish pressure.
• Currently, the USD/INR is trading at 73.86 – up 0.30 percent on the day.

4-hour Chart

Additional headlines reported by Reuters from the BoJ quarterly economic report:

Japan’s economy expected to continue expanding moderately.

Economy’s momentum for hitting price goal sustained a lacking strength.

No sign so far of excessively bullish expectations in asset markets, financial institutions activities.

Risk of financial system destabilizing not big for now but outlook warrants attention.

Risks to price outlooks skewed to the downside.

Risks to economic outlooks skewed to the downside.

Inflation likely to gradually accelerate toward 2%.

Developments in overseas economies including protectionism pose risks to the economic outlook.

Medium to long-term inflation expectations have been more or less unchanged.

The pace of improvement in prices, inflation expectations has remained slow compared to improvements in the economy, job market.

If confidence and fiscal sustainability declines economy may underperform the baseline scenario.

James Knightley, Chief International Economist at ING, offers a sneak peek at what to expect from the October US jobs report due later this Friday at 1230 GMT.

Key Quotes:

“Labour demand remains strong and with a lack of spare workers, pay pressure is rising. This will keep the Federal Reserve hiking interest rates over the coming 12 months

For what it is worth, we are forecasting payrolls growth of 200,000, but to be honest, anything could happen – the range of economist forecasts is 105,000 up to 253,000, according to Bloomberg.

Pay rates have been grinding higher, but we expect to see a real breakthrough this month. The annual rate of wage growth is set to push above 3% year-on-year for the first time since April 2009. In fact, we expect to see a 0.3% month-on-month, 3.2% YoY outcome. 

 We look for the jobless rate to drop to 3.6%, which would be the lowest rate since November 1969. Underemployment is also likely to fall in this strong growth environment at a time when the participation rate in the jobs market is stagnant.”

Electricity consumption, which is considered as one of the most reliable economic indicators in China, increased by 8.9 percent year-on-year in the first 3 quarters, the fastest pace in six years, and 2 percentage points higher than a year earlier, according to China’s National Energy Administration.

The data is thought to give a more accurate picture of growth than GDP. Hence, it seems safe to say that the world’s second-largest economy is holding up well amid the trade war with the US.

Reuters reports that the UK Foreign Secretary Jeremy Hunt is likely to announce on Wednesday, a plan to expand the British diplomatic network once the UK leaves the European Union (EU) early next year.

According to advance extracts, as cited by Reuters, Hunt will say in the speech entitled “Britain’s role in the world after Brexit,” “our democratic values are arguably under greater threat than at any time since the fall of the Berlin Wall … we can use our influence, reach and power to defend our values.”

“We must reinvigorate and expand British diplomacy,” he adds.

Further Details:

Britain is to hire nearly 1,000 more diplomatic staff.

They will comprise 335 new positions overseas, 328 in London and 329 new local staff around the world.

It will also create 12 new posts, either embassies or missions, with a new embassy in Djibouti and the upgrading of the office in Chad to a full embassy.

The People’s Bank of China (PBOC) set the yuan reference rate at 6.9646 vs the previous day’s fix of 6.9574. 

• The AUD/USD pair printed an intraday low of 0.7073 a few minutes before press time and is currently trading just above the support of the trendline connecting the Oct. 26 low and Oct. 29 low.
• The inverse head-and-shoulders breakout failed earlier today and the pair fell back below 0.71 after Australian data showed that inflation growth slowed in the third quarter.
• Further, China manufacturing PMI fell to 50.2 in October, the lowest reading in over two years, sending the AUD down to the trendline support. Acceptance below that level may allow a re-test of the recent low of 0.7021 (Friday’s low).
• On the higher side, 0.7122 (Asian session high) is the level to beat for the bulls.

Hourly Chart

Trend: Bullish invalidation

BoJ Rate Statement overview

Sometime around 03:00 GMT will be seeing another Monetary Statement and Rate Decision from the Bank of Japan (BoJ), to be followed by a press conference chaired by the BoJ’s head, Haruhiko Kuroda. Little adjustment is expected with the BoJ firmly entrenched in their hyper-easy monetary policy, but added focus has appeared recently as central bank planners begin to bring extra focus onto the 10-year JGB yield curve, and traders will be paying close attention to Kuroda’s ensuing press conference to glean hints about adjustments the BoJ may be considering for the near future.

How could it affect the USD/JPY?

The US Dollar has seen an extension against the Yen heading into Wednesday’s action, and as noted by FXStreet’s own Valeria Bednarik, “in the 4 hours chart, the Momentum indicator heads north in overbought readings, while the RSI is flat at around 62, as the price bounced from a bullish 200 SMA multiple times in these last couple of sessions. The 100 SMA in the mentioned chart, maintains its bearish slope below the larger one. As long as bulls keep defending the 112.60 price zone, the pair is poised to extend its advance up to 113.40, September 8 daily high.”

Support levels: 112.60 112.35 111.95    

Resistance levels: 113.00 113.40 113.8

Key notes

USD/JPY analysis: near 113.00 and heading higher

USD/JPY Approaching Big Reversal

USDJPY Analysis: Breaks most technical indicators

About the BoJ Monetary Policy Statement

An official monetary policy statement is released by the Policy Board of the Bank of Japan. By communicating the committee´s vote outcome regarding interest rates and other policy measures as well as the economic conditions influencing their decision, the statement gives clue to future changes in monetary policy.

About the BoJ Rate Decision

BoJ Interest Rate Decision is announced by the Bank of Japan. Generally, if the BoJ is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the JPY. Likewise, if the BoJ has a dovish view on the Japanese economy and keeps the ongoing interest rate, or cuts the interest rate it is negative, or bearish.

China’s official manufacturing Purchasing Managers’ Index (PMI) fell to 50.2 in October from the previous month’s reading of 50.8. The markets were expecting the PMI to print at 50.6. 

• Aussie on the defensive after the release of the quarterly inflation report. 
• The slowdown in inflation was expected, hence the losses could be short-lived. 

The AUD/USD is flashing red after the release of Australia’s third-quarter inflation report. 

The headline CPI in September quarter rose by 0.4 percent as expected, leaving the increase on the year earlier at 1.9 percent. The previous quarter’s CPI reading was 0.5 percent.

Meanwhile, the Reserve Bank of Australia’s trimmed mean CPI also slowed to 0.4 percent as expected, leaving the annualized figure at 1.8 percent – slightly lower than the estimate of 1.9 percent.

The Aussie dollar is losing altitude as of writing, likely due to a slowdown in inflation. At press time, the AUD/USD is trading below the 10-day EMA Of 0.7089, having clocked a high of 0.7107 earlier today. However, the decline could be short-lived as the drop in inflation was pretty much in line with the expectations. 

Further, the Aussie dollar may pick up a bid again if the global equity markets report gains and the Chinese manufacturing and non-manufacturing PMI numbers, due in a few minutes, paint a positive picture of the world’s second-largest economy. 

Technical Levels

Resistance: 0.7160 (Oct. 17 high), 0.7171 (50-day EMA + falling trendline January highs), 0.7202 (Aug. 15 low)

Support: 0.7053 (previous day’s low), 0.7021 (Friday’s low), 0.70 (psychological support)

The Australian Consumer Price Index for 2018’s third quarter came in largely at expectations, although the key q/q headline CPI missed forecasts slightly, coming in at 1.8% versus the expected 1.9%, and the key indicator failed to hold steady with the previous quarter’s numbers.

more to come…