Intraday Market Thoughts

Optimism Abounds Ahead of BOJ

by Adam Button
Oct 7, 2011 0:34

Signs that the US may skirt recession continued to fuel optimism as risk trades gained for a third day. AUD, NZD and EUR were the top performers while USD and GBP lagged. The Bank of Japan rate decision is the highlight of the upcoming session. Thursday's Premium Trades Intermarket Insights had 9 trades, 2 of which hit all targets (EURUSD & US crude oil), while the remaining 7 have remain in progress.

Better-than-expected data on jobless claims and position squaring ahead of Fridays non-farm payrolls report helped risk assets. In the US, initial jobless claims rose to 401K but this was less than the 410K consensus. The S&P 500 gained 1.8% to 1164.Oil built on strong gains a day ago, adding 3.6% to 85.52.

The current was strong enough to boost GBP back to nearly unchanged against the dollar after deep earlier declines after the BOE announced a fresh round of asset purchases. The euro climbed after the ECB left rates unchanged but announced it will resume covered bond purchases.

7 of Thursday's 9 PREMIUM Intermarket Insights trades remain in progress. Access them directly here: To become a member, join here:

Ashraf's TWITTER FOLLOWERS @alaidi and @alaidiPremiumFX saw his EURUSD prediction for 1.3360-1.3400 hit the target when the pair was at 1.3260s.

A risk in the day ahead comes with the Senate voting on a bill aimed to punish China for manipulating the yuan. Although the penalties will initially be modest at around $6m per year, this type of bickering could always escalate and a trade war between the US and China would certainly end in a drastic recession. If the Senate votes to adopt the bill (as expected) the legislation would then pass to the House.

Although markets are awash in optimism at the moment, nothing much has changed. Europe remains in a crisis and the threats to growth in developing and developed nations are rising. Non-farm payrolls are expected at +55K but any reading of less than +200K does almost nothing to alter the picture of an economy thats failing to move forward.

Asia-Pacific Preview

The BOJ decision has no set time but is generally delivered around midnight GMT. Policymakers are considering further measures to expand lending for reconstruction projects in the area around Fukushima but nothing substantial for the broader economy. Nikkei reported earlier this week that the BOJ is expected to forecast inflation of below 1% for the year beginning in April 2013. Although far off, this gives them leeway to loosen monetary policy further through asset purchases or other, more creative measures. The risks to the yen are to the downside on fresh asset purchases or via jawboning.

The only other indicator on the calendar is the AiG performance of construction index for Australia at 2230 GMT. Its expected to slip to 30.0 from 32.1. It may have a small effect on AUD but it will not be lasting.


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