Dollar and Swiss Franc weaken broadly today on optimism that many countries are heading towards lockdown exit. New Zealanders will return to work on Tuesday as alert level is shifted down at midnight. Even Italy is talking about reopening factories and buildings sites from May 4. New York is already planning for phased reopening in May too. Though, some countries like UK remains very cautious. Global stocks are having mild gains for now, with DOW futures up more than 200 pts. Australia and New Zealand Dollars, two of the best in class in coronavirus containment, are the strongest ones. Yen is mixed after BoJ’s stimulus expansion.
Technically, development in Aussie pairs will be watch much attention. AUD/USD is heading to 0.6670 key support turned resistance with the current rebound from 0.5506. AUD/JPY’s rebound is extending towards 69.95 medium term support turned resistance. EUR/AUD is also close to 1.6597 medium term resistance turned support too. Decisive break of these levels would be and early sign of medium term bullish reversal and Aussie.
In Europe, currently, FTSE is up 1.52%. DAX is up 2.66%. CAC is up 1.90%. German 10-year yield is up 0.0119 at -0.459. Earlier in Asia, Nikkei rose 2.71%. Hong Kong HSI rose 1.88%. China Shanghai SSE rose 0.25%. Singapore Strait Times rose 1.24%. Japan 10-year JGB yield dropped -0.0152 to -0.037.
Gold faces resistance from 1747, consolidation might extends
While Dollar is under broad based pressure today, Gold hasn’t been performing very well neither. There’s strong resistance from 1747.75 short term top to limit upside for the moment, as gold retreated. Short term focus is on 4 hour 55 EMA.
Break there would extend the consolidation from 1747.75 with another fall towards 1644.67 resistance turned support. But in that case, we’d expect strong support fro 1451.16 to 1747.75 at 1634.45 to contain downside and bring rebound.
Meanwhile, break of 1747.75 will extend larger up trend to 200% projection of 1046.37 to 1375.17 from 1160.17 at 1817.77 next.
BoJ Kuroda: Removing bond-buying guidance clarified our intention to buy government bonds aggressively
BoJ decided today to purchase JGBs to and T-bills “without setting an upper-limit” to keep 10-year JGB yields at around zero percent. Governor Haruhiko Kuroda said in the post meeting conference, “by removing the bond-buying guidance, we clarified our intention to buy government bonds aggressively without setting a limit.”
“We will buy as many government bonds as necessary under YCC (yield curve control),” he said. “We’re buying government bonds as part of our monetary policy steps. But our measures and fiscal stimulus will also have a mutually reinforcing impact.” But he emphasized “we aren’t monetizing government debt.”
On future policy changes, he emphasized “we won’t hesitate to take additional monetary easing steps if needed. As for future policy options, we can expand the size of our asset buying or market operations, as well as cut interest rates. We will choose the most appropriate option at the time. We won’t rule out interest rate cuts as a policy option.”
On inflation, he said “I don’t think there’s a risk Japan will revert to deflation. But short-term inflation expectations are falling quite a bit, and those for the long term are also falling somewhat. This needs to be watched carefully.”
BoJ to purchase JGBs without setting an upper-limit
BoJ announced further enhancement on monetary easing after shortening the two-day meeting to just three hours. Short term interest rate is held at -0.1%. Meanwhile, BoJ will purchase JGBs to and T-bills “without setting an upper-limit” to keep 10-year JGB yields at around zero percent.
Other two measures include firstly, commercial papers and corporate bonds purchases upper limit is raised to JPY 20 trillion., with maximum maturity extended to 5 years. Secondly, the Special Funds-Supplying Operates to Facilitate Financing in response to the Novel Coronavirus will expand the range of eligible collateral, counter parities, with 0.1% positive interest rate applied.
BoJ: GDP to contract -5% to -3% in fiscal 2020, return to deflation
In the Outlook for Economic Activity and Prices, BoJ said the economy is “likely to remain in severe situation for the time being” due to the impact of the coronavirus pandemic. GDP could shrink as much as -5.0% to -3.0% in fiscal 2020. Japan could also return to deflation with core CPI down -0.7 to -0.4%. BoJ added that “future developments are extremely unclear” and risks to both economic activity and prices are “skewed to the downside”.
GDP growth forecast:
- Fiscal 2019 at -0.4% to -0.1% (down from 0.8% to 0.9%).
- Fiscal 2020 at -5.0 to -3.0% (down from (0.8 % to 1.1%).
- Fiscal 2021 at 2.8% to 3.9% (up from 1.0% to 1.3%).
- Fiscal 2020 at 0.8% to 1.6%.
Core CPI forecast (excluding sales tax hike effects):
- Fiscal 2019 at 0.4% (vs 0.4% to 0.5%).
- Fiscal 2020 at -0.7% to -0.4% (down from 0.9% to 1.0%).
- Fiscal 2021 at 0.0% to 0.7% (down from 1.2% to 1.6%).
- Fiscal 2022 at 0.4% to 1.0%.
USD/JPY Mid-Day Outlook
Daily Pivots: (S1) 107.32; (P) 107.54; (R1) 107.71; More…
Intraday bias in USD/JPY remains neutral with focus on 106.91 support. On the downside, break of 106.91 will resume the decline from 111.71 to 100% projection of 111.71 to 106.91 from 109.38 at 104.58. On the upside, break of 109.38 will suggest that fall from 111.71 has completed. Intraday bias will be turned back to the upside for 111.71/112.22 resistance zone.
In the bigger picture, at this point, whole decline from 118.65 (Dec 2016) continues to display a corrective look, with well channeling. There is no clear sign of completion yet. Break of 101.18 will target 98.97 (2016 low). Meanwhile, sustained break of 112.22 should confirm completion of the decline and turn outlook bullish for 118.65 and above.
Economic Indicators Update
| GMT | Ccy | Events | Actual | Forecast | Previous | Revised |
|---|---|---|---|---|---|---|
| 3:00 | JPY | BoJ Interest Rate Decision | -0.10% | -0.10% | -0.10% | |
| 14:30 | USD | Dallas Fed Manufacturing Business Index Apr | -70 |
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