Yen Stays Pressured after BoJ Stands Pat, Dollar and Sterling Lack Follow Through Buying

BoJ left monetary policies unchanged today as widely expected. Benchmark interest is kept at -0.1%. Meanwhile, under the yield curve control framework, the central bank continues to target 10 year JGB yield at around 0%. Annual pace of asset purchase is held at JPY 80T. Locally, BoJ noted that "private consumption has shown increased resilience against a background of steady improvement in the employment and income situation". Globally, BoJ said that overseas economies were "continuing to grow at a moderate pace as a whole". Overall tone in the central’s statement was slightly more upbeat than the previous one.

The Japanese yen is trading as the weakest major currency for the week. It’s partly due to talk of an exit in ultra-loose monetary policy globally. In particular, Fed maintained the forecast of a total of three hikes this year. Three BoE policy makers voted for a rate hike yesterday. Recovery in US treasury yield also lifted USD/JPY up. 10 year yield continues to try to draw support from 38.2% retracement of 1.336 to 2.621 at 2.130. It’s still held below 2.229 resistance and maintains bearish outlook. But downside momentum is seen as diminishing as in daily MACD. The markets could finally make up their mind on reversal or not next week.

Both Dollar and Sterling firmed up mildly after respective central bank meeting. But they are overwhelmed by the strength in commodity currencies, in particular Canadian Dollar. Also it should be noted that both EUR/USD and EUR/GBP are holding above key near term support at 1.1109 and 0.8639 respectively. There is no confirmation of reversal in neither pair. Except versus the Japanese Yen, the Dollar and Sterling still have much to prove.

Talking about the Pound, the negotiation between UK and EU on Brexit is scheduled to start next Monday. It’s reported that EU has already sent its positioning papers to London four days ago. And by now UK has yet to return an equivalent document. Prime Minister Theresa May’s cabinet is still split over the approach on the negotiation, with grow voice to push for a softer Brexit.

On the data front, New Zealand business NZ manufacturing index rose to 58.5 in May. Eurozone May CPI final will be featured in European session. US housing starts and building permits, labor market conditions index, U of Michigan consumer sentiment will be featured.

EUR/GBP Daily Outlook

Daily Pivots: (S1) 0.8704; (P) 0.8755; (R1) 0.8788; More…

EUR/GBP’s retreat from 0.8865 extended lower but it’s holding above 0.8639 support so far. Intraday bias remains neutral first. We’d still expect strong support from 0.8639 to contain downside and bring rise resumption. Decisive break of 0.8851 resistance will pave the way to retest 0.9304 high. However, break of 0.8639 support will now indicate near term topping and bring deeper pull back 0.8529 resistance turned support and below.

In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. The leg from 0.9304 should have completed after testing 0.8332 structural support. But it’s too early to say that larger rise from 0.6935 is resuming. Rejection from 0.9304 will extend the consolidation with another falling leg. Meanwhile, firm break of 0.9304 will target 0.9799 (2008 high). In case of another decline, we’d expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside and bring rebound.

Economic Indicators Update