Intraday Market Thoughts

BoJ Likely to Push the Limits in Meeting

by Patrik Urban
Jan 21, 2013 23:46

Pres Obama started his second term and the Eurogroup named a new leader in a holiday-thinned start to the week. The pound was the weakest performer on the day and GBP/USD fell to the lowest since September. The yen rebounded as traders square up to avoid an uncertain Bank of Japan decision in the hours ahead. Status on last Wednesday's Premium Insights: 8 trades hit all targets, 5 were unfilled, 5 remain in progress. 1 of 2 EURUSD longs hit all targets, the other in progress; 2 of 2 GBPUSD shorts hit all targets 2 of 2 USDJPY longs hit all targets 2 of 2 AUDUSD longs in progress 1 of 2 CADJPY hit all targets, the other missed the fill (89.10) by 18 pips 2 of 2 EURJPY longs unfilled 2 of 2 EURGBP longs unfilled (1st missed fill (0.8290) by 9 pips 1 of 2 Gold longs hit all targets, the other in progress (missed final target by 3 pips) 1 of 2 Silver longs hit all targets, the other in progress (missed fibal by 0.29) 1 of 1 Crude longs unfilled (missed entry by 0.30)

Trading was light with the US on holiday and the BOJ decision looming. The euro traded in a 20 pip range throughout the session.

Cable was more lively as it pushed below the November low of 1.5829 to a four-month low of 1.5807 before rebounded to 1.5832.

The inauguration of Obama's second term was a welcome distraction but his comments didn't move markets. Republicans also announced plans to vote on Wednesday on a bill to extend the debt ceiling until mid-May.

All eyes are on the Bank of Japan as officials wrap up a two-day meeting today. They will launch an extensive new program and attempt to finally tame 20 years of near-zero inflation. At least 10Trn yen of bond buying is expected but an open-ended program that will continue to buy until 2% inflation is imminent is a possibility.

Another idea that has been leaked is the potential to lower the floor on excess reserves below 0.1%. That could force banks out of cash and could result in more lending, Japanese govt bond buys or foreign bond buying.

Other ideas like foreign bond buying are also on the table but less likely.

One issue is that all these ideas have been leaked in the press so their ability to shock has been deflated. In the past, the yen has rallied on BOJ decisions that were more dovish than expected, so beware.

The meeting today began earlier than usual but there is no set time for the decision. In general, it comes out around 0400 GMT but it can be slightly earlier or 2-3 hours later.


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