The Bank of Japan meeting overnight was extremely thin on developments. BoJ governor Kuroda was oddly testifying before parliament during the meeting, and there was perhaps a sign of caution on the pace of JPY weakening from his rhetoric: He suggested that a weaker JPY is generally “not a minus” for Japan, provided the exchange rate moves “in reflection of financial and economic fundamentals.”
He also suggested additional easing was possible if “downside risks to the outlook materialise”. But more attention was given to Shinzo Abe’s comment overnight that the JPY is back to where it was before the Lehman disaster and that a weak JPY is hurting households. Also, he said that, while it is too early to say deflation has ended, there is currently no deflation in Japan. There was even a complaint from another government official that the weak JPY had failed to boost exports as expected.
The seeds for the JPY strengthening overnight were already sown yesterday, however, as New York saw equities dropping again as the picture remains rather bearish. The market may be quick to brush off the overnight developments if bonds sell off and risk appetite returns, but the JPY strengthening is more likely to deepen as long as risk appetite remains nervous, and the major European stock indices are looking more than a bit ominous, with the DAX moving in a head and shoulders neckline. Federal Open Market Committee vice chairman William Dudley said he would be happy to raise rates some time next year but that the Fed could allow the economy to “run a little hot” first to get inflation back in the target range and boost employment levels.
The Reserve Bank of Australia tried more or less to stay under the radar at its meeting overnight, leaving the rate unchanged as expected and suggesting that growth will be “a little below trend for the next several quarters”
Chart: GBPJPY
GBPJPY is a chart on the edge here, trying to decide if the rally remains intact or whether there is danger of a full plunge back into the range. Watching this one with interest today. 
Chart: USDCAD
USDCAD not one of the more volatile movers of late, but this chart posted a classic reversal pattern with yesterday’s close after a strong Ivey PMI. Lower support levels are 1.1100 and 1.1000.
Source: Bloomberg, Saxo Bank
Looking ahead
We have some fairly compelling pattern reversals (bearish USD) after yesterday’s antics, such as the one for USDCAD shown above. So for now it is about trying to find correction targets where fresh USD buying will come in – a trend consolidation and not a trend reversal. And sometimes, in very powerful trends, local reversals of the trend are red herrings - so really it's tough to pick your spots in these conditions.
Watch out for Fed officials out speaking much later this evening for any mention of the USD rally.
Levels of interest:
USDJPY: If we revert back to our original USDJPY correction levels, the 107.40(flat-line support) and then 106.65 (38.2% Fibo of the last rally wave) and then 105.45 (old high) are the levels of greatest interest. Resistance looks like 109.00/25 EURUSD: 1.2690 is the 38.2% Fibo of the bigger wave from 1.3000, with 1.2750 perhaps a psychological level of interest. The swing level back lower looks like 1.2570 if we fail to see the pair pull higher today. GBPUSD: 1.6050 is falling this morning, so let’s back track to the 1.6165/70 area (flat-line interest and 38.2% Fibo retracement, with 1.6050/30 now acting as support. AUDUSD: tremendous room to move for AUDUSD after the massive drop from 0.9400, but lets start with the 0.8825 area and then look toward 0.8933 if USD bulls are in an all-out retreat. 0.8725 is local support.
Economic Data Highlights
- New Zealand Q3 NZIER Business Opinion Survey out at 19 vs. 32 in Q2
- Australia Sep. AiG Performance of Construction Index out at 59.1 vs. 55.0 in Aug.
- Australia Reserve Bank of Australia leaves rates unchanged at 2.50% as expected
- Bank of Japan Monetary Base Target left unchanged at ¥270T as expected
- Germany Aug. Industrial Production out at -4.0% MoM and -2.8% YoY vs. -1.5%/-0.5% expected, respectively and vs. +2.7% YoY in Jul.
Upcoming Economic Calendar Highlights (All times GMT)
- Switzerland Sep. CPI (0715)
- Sweden Aug. Household Consumption (0730)
- Sweden Riksbank to Publish Business Survey (0730)
- Norway Aug. Industrial Product Manufacturing (0800)
- UK Aug. Industrial/Manufacturing Production (0830)
- Canada Aug. Building Permits (1230)
- UK Sep. NIESR GDP Estimate (1400)
- US Oct. IBD/TIPP Economic Optimism Index (1400)
- US Fed’s Kocherlakota to Speak (1830)
- US Aug. Consumer Credit (1900)
- US Fed’s Dudley to Speak (1900)
- US Fed’s Potter to Speak (2030)
- UK Sep. BRC Shop Price Index (2301)
- Japan Aug. Current Account Balance (2350)
- China Sep. HSBC Services PMI (0145)
- Japan Sep. Eco Watchers Survey (0500)
- Japan BoJ Monthly Report (0500)