Yen Weakened as BOJ Held Unchanged Monetary Policy, Eyes on ECB, BOE - 5.9.2013

Bank of Japan decided to leave its monetary policy unchanged as it was broadly expected, maintaining its key rate near zero levels and monetary base to continue expanding by ¥60-70 trillion yen per annum. In addition, BOJ restated its goal to achieve inflation of 2% and will continue with quantitative and qualitative tools for as long as necessary. The Japanese Yen softened as slight risk improvement was reflected on NIKKEI 225 that rose by 0.08%, pushing the USDJPY pair to inch as high as 99.97. The pair though was capped by concerns on Syria as the Senate Foreign Relations Committee voted in favor of military action. Moreover, in technical terms it would be hard for the USDJPY to overpass the ultra-strong cap at 100 nevertheless an upbeat NFP report could give the appropriate boost to breach it.

Turning now to Bank of Canada decision, the central bank held key rate unchanged at 1% as it was widely anticipated but sounded a bit hawkish saying that” the considerable monetary policy stimulus currently in place will remain appropriate… gradual normalization of policy interest rates can also be expected”. The US dollar retreated against the Canadian to the lower level of the 1.0566/1.0472 sideways area.

The US dollar on the other hand was underpinned by US Beige book suggesting that economic activity has expanded by modest to moderate pace including data from early July to August 26 for twelve US districts. The economic activity improved as consumer spending increased in most of the twelve districts amid strong demand for autos and dwelling products. The US dollar index drew support line at 82.04 and bounced up to 82.35. Lower volatility though has been expected ahead of NFP report. The greenback gained the most against the Swissy surging by 0.50%, breaching resistance at 0.9380 and reaching as high as 0.9404, upside bias is most likely to continue in the intraday.

Looking ahead, investors turn their attention to European currencies as the ECB and BOE are going to release their monetary decisions. Both are expected to maintain current policies unchanged. ECB is facing recently improved data for Germany and France but peripheral members did not escape debt crisis yet, lastly most of EZ PMI reports suggest activity is picking up. The Euro though has been down trending against the US dollar, currently is consolidating between 1.3217/1.3137 tight zone before major fundamental events.