Asia Session: BOJ Saves Its Ammunition

Investors in Asia are feeding off the risk rally overnight, which was sparked by better than expected housing data out of the US and anticipation of a strong result from the ECB’s three-year LTRO. AUD/USD is the biggest gainer, having risen from below parity yesterday to above 1.0100, EUR/USD is also broke a few support levels to rise above 1.3100.

As expected, the BOJ left the overnight cash rate unchanged at
Japan’s trade balance figures are limiting gains for the JPN225, the data showed that the country’s deficit increased to YEN684.7 billion, more that the expected YEN484.7 billion deficit. The index is currently up around 1.3%, compared with an average of around 1.8% for the major economies in the region.

In Australia, the AUS200 is currently trading higher by around 1.9%, bolstered by higher commodity prices leading mining stocks higher. Furthermore, gains in the financial sector are being led Macquarie bank, who announced that it may be considering the sale of its retail lending business, with the Australian Financial Review reporting that HSBC Holdings, Commonwealth Bank and Barclays have expressed interest.

In other news, New Zealand’s current account deficit widened in Q3 to NZD4.599 billion from an NZD0.921 billion deficit. The data also showed that the deficit increased as a share of GDP to -4.3% during Q3. We expect that the deficit could widen even further as a result of the increase in spending on imported materials to help rebuild Christchurch and due to expected interest rate increases next year.

The KOSPI is bouncing back by around 3.15% at the time of writing, after falling over 4% following the announcement by North Korea that Kim Jong IL had passed away.

We could witness some fairly range-bound price action heading into the London session, as traders await the results of the ECB LTRO. However, this could be upset by MPC meeting minutes out of the UK at 20:30AEST. Currently, we are looking at a higher open for equity markets in the region.

Ones to watch:

The aussie has been the standout performer of the session, not only did the pair break parity overnight but it has also managed to push through the 1.0100 level today. Fundamentally the short-term future of AUD/USD doesn’t look so bad, given that we are expecting a fairly strong take-up of the ECB’s LTRO.

On the upside, we think that around the 1.0150 level AUD/USD could find some stiff resistance, as this level has been a proven resistance level lately during short-term rallies. Also, the RSI has come off its recent highs as a result of the earlier rally, so this suggests that the pair might have further to go. We also want to watch for a sustained break of its current trend line, possibly suggesting that this trend has ended.

AUD/USD – 30 min chart