Market Brief
As expected, the Bank of Japan left its policy unchanged at -0.1% as the market still needs to adapt to this new environment of negative interest rates. However, the absence of inflationary pressure suggests that the BoJ will have no choice but to take another step towards monetary easing to try to revive fading inflation expectations. The Japanese yen reacted positively to the news as USD/JPY fell to 113.30 after swinging between 114.14 and 113.22. The closest support and resistance can be found at 112.16 and 114.87 respectively. On the equity side, the Nikkei was down 0.68%, while the broader Topix index fell to 0.57%.
The small equity sell-off wasn’t contained within Japan with Asian regional markets also trading in negative territory. Hong Kong’s Hang Seng fell 0.64%. In mainland China the Shenzhen Composite slid 0.93%, while in Shanghai shares edged up 0.17%. South Korean shares slid 0.12%, in Taiwan the Taiex fell 1.56% and in India, the Sensex settled down to 0.75%. We see this small market correction as necessary, especially given the sharp increase of the previous days.
In the commodity complex, investors are not in a laughing mood and are starting to wonder whether the massive rally that started in January is about to end. Indeed, word on the street is that the current price levels of commodities, ranging from copper to oil, are not justified by demand and will therefore have to adjust lower. Overnight, iron ore future contracts on the Dalian commodity exchange - for delivery in May - were down 3.34% to 419.50 yuan/metric ton. Copper futures fell 1.10%, aluminium was down 0.53%, while WTI slid 1.26%.
As a result, commodity currencies were experiencing a sell-off this morning. The Canadian dollar was down 0.69% against the greenback as WTI returned to $36.70 a barrel. The Australian dollar was also under mounting selling after the debasement of iron ore and crude oil. AUD/USD fell to 0.7470, down more than 1% since Monday. The Aussie will find a support area at around $0.74 (psychological threshold), while on the upside, a resistance can be found at 0.7594 (high from March 14th), then 0.7849 (high from January 15th).
EUR/USD treads water at around 1.11 as the market awaits February’s retail sales and PPI figures, due to be released later this afternoon. Sales are expected to have contracted 0.2%m/m, while market participants expect producer prices to shrink 0.2%m/m in the second month of the year. The market is relatively bearish dollar, so a good read of those two indicators could wake up dollar bulls.
Today traders will be watching CPI from Sweden and Italy; retail sales, PPI and Empire manufacturing from the US.
Currency Tech
EUR/USD
R 2: 1.1495
R 1: 1.1376
CURRENT: 1.1110
S 1: 1.0810
S 2: 1.0711
GBP/USD
R 2: 1.4591
R 1: 1.4437
CURRENT: 1.4220
S 1: 1.4108
S 2: 1.3836
USD/JPY
R 2: 117.53
R 1: 114.91
CURRENT: 112.96
S 1: 110.99
S 2: 105.23
USD/CHF
R 2: 1.0257
R 1: 1.0093
CURRENT: 0.9864
S 1: 0.9661
S 2: 0.9476