Talking Forex: USD/JPY Broke Bbove The 104.50 Level

EUR/USD
The pair trended lower throughout the session amid a stronger USD and disappointing German ZEW Survey release. During Asian trade, Fed Watcher John Hilsenrath said the Fed are on track to trim their QE program at the January meeting, and could cut purchases to USD 65bln/month, adding that the Fed is comfortable with rate expectations in the market. This commentary triggered a weakness in USTs and a strengthening of the USD index to the highest level since November last year, a move which provided the downward momentum for the EUR/USD throughout the session. From the Eurozone, participants were presented with the latest ZEW survey from Germany which showed a fall in the headline expectations figure which further exacerbated the earlier weakness seen in the pair, with the disappointing figure being attributed to German sentiment reaching a plateau and is historically at a very high level. Following on from the aforementioned moves and the recent slew of positive data from the UK, the EUR/GBP printed the lowest level since January 2013. Looking ahead, participants will be presented with very little until Thursday, which will see the release of a host of Eurozone PMI figures.

USD/CAD
Following a stronger USD and market participants positioning ahead of the BoC rate decision tomorrow, the USD/CAD broke above the 1.10 level for the first time since 2009. In recent trade concerns ahead of tomorrow’s rate decision have been growing following last week’s dovish think tank report which said the BoC will hold its benchmark rate at 1% and it will likely stop short of adopting an explicit easing bias. The report then went onto say that new forecasts will remind why governor Poloz sounds more worried about downside risks to inflation than about housing debt continuing to evolve constructively, but a weaker CAD and improving economy are helping delay and may obviate the need for a further dovish tilt. Therefore, alongside a relatively light data calendar from the US, tomorrow’s BoC decision is likely to be the core focus for market participants.

USD/JPY
The pair finished the session in positive territory as the USD/JPY broke back above the 104.50 level amid a weaker JPY and stronger post-Hilsenrath article USD. As discussed above, the Hilsenrath commentary, regarding the path of the Fed’s QE program saw a stronger USD and also saw the pair benefit from favourable interest rate differential flows and led the USD/JPY to advance to its highest level since 16th Jan. Looking ahead as already discussed this week, the focus for market participants will be upon tomorrow’s BoJ rate decision, with a NY think tank expecting no change in monetary policy from the BoJ alongside the recent sales tax hike. Furthermore, the report said the BoJ will cut back on small monthly JGB purchases, but will maintain the annual buying target.