Bank of Japan will continue the increase of the monetary base by purchasing 80 trillion yen of government bonds and risky assets. As expected, this information was confirmed. What was unexpected was the proposal of board member Takahide Kiuchi, which proposed that the BOJ increase both its base money target and its JGB holdings at an annual pace of 45 trillion yen. Of course he was the only one from the board having, or better said, formulating this situation so we may expect a contradictory reaction when BOJ Governor Haruhiko Kuroda will explain his policy decisions at the news conference.
The Japanese yen depreciated, so USDJPY tested the 119.67 support level (backed by Fibonacci retracement 38.2 level). It’s obvious that in the long term the weakness of the yen is encouraged while the Japanese index JAP225 confirms unequivocally the market expectations of more monetary stimulus. JAP225 is currently situated in the 19850 region and it’s a matter of time until it reaches the 20000 record high.
The American dollar received market participants’ attention lately, being also favored by institutions such as BNP Paribas or BofA Merrill Lynch. The slowdown in the first quarter is seen as a phase that can be recovered while IBD/TIPP Economic Optimism index is rising to 51.3 points.
On the other side, the euro is enjoying the indicators better than the estimate in Spain and Italy for the services sector, but is seriously worrying about Greece. The payment due on Thursday may be covered, but it is unclear whether the ones who need to recover money on future will be as lucky.
Regarding the evolution for the rest of the week, the confidence in the American dollar could be transposed on the market by the EURUSD testing the 1.0760 support level. This scenario is likely if the dollar gets through the FOMC meeting later today.
Both Bank of India and Bank of Australia maintained their interest rate at 7.5% respectively 2.25%. By the end of the year, both the economies are expected to continue the expansionary monetary policy. Speaking about the AUDUSD, the currency pair price has rebounded from the 0.7570 – 0.7588 support area while the 0.7710 level is working as a resistance region. A breakout could rise chances for the lateral movement to be continued so the upper zone to be tested again (0.7745 in the first stage and then 0.7800).
In the meantime, the oil quotations are scoring new local highs as conflicts in Yemen have amplified. The recent correction is due to Saudi Arabia who reported record output in March, but the situation is about to get volatile as later today the weekly American Crude Oil Inventories will be reported. The expectations are lower that the last report, at 3.3 million barrels, but the market reaction could be linked more to the total oil inventories which are currently sustaining the oversupply.
