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At 2:00:00 AM Germany Jan PPI y/y (exp -0.3%, prev 0.1%) Germany Jan PPI m/m (exp 0.4%, prev -0.3%) At 2:45:00 AM France Jan Unemployment (exp 9.1%, prev 9%) At 6:00:00 AM E-12 Jan HICP fin m/m (exp 0.4%, prev n/a) E-12 Jan HICP final y/y (exp 2.6%, prev 2.5%)
The dollar edged back above 134 yen following the Bank of Japan's decision to increase its outright JGB purchases to one trillion yen a month from 800 billion. But the greenback held steady against the European majors ahead of key US data later in the day. USD/JPY regained the 134 level after falling from support around 134.25 in early Asian trade. Meanwhile, the dollar hovered rangebound around $0.8640 cents and $1.4180 against the euro and sterling respectively.
The BoJ announced as expected that it would increase liquidity through monthly JGB purchases. But heavy political pressure was seen as encouraging the move, BoJ Governor Hayami had previously opposed. Japanese Finance Minister Shiokawa, who has repeatedly called on the Bank of Japan (BOJ) to ease monetary policy further, praised the central bank's move to further ease monetary policy. But Hayami would prefer the government to enact tough structural reforms before easing monetary policy further.
Specifically, Hayami now called on the government to quickly inject public funds into the nation's ailing banks to help them recapitalise and prevent a financial crisis. Hayami added that the BoJ could act as the lender of last resort for troubled banks, offering special uncollateralised lending to match the government's injection of public funds. However, government officials have said banks are not in need of the funds, much to the consternation of the BoJ and markets. The government dislikes the idea of another public injection as it would amount to an admonition of failure.
Therefore, with repatriation poised to slow near the end of March and net outward investment to resume thereafter dealers expect to see further yen weakness in the weeks to come allowing USD/JPY to target 140 once the 135.00/20 major resistance band is broken. Upside capped at 134.70/85 and strong resistance at 135.15. Support holds at 133.50, 133.20, 133.0 and 132.50.
Today's inflation data from the euro area is expected to show a rise in the final E-12 January HICP y/y to 2.6% from 2.5% last month. Economists expect the figures to keep interest rate policy steady at the European Central Bank, which holds its next rate review meeting next week. Supporting this view was evidence that Eurozone M3 rose on a 3-month basis to a high of 8% from 7.8%. The ECB also watches M3 as part of their inflation outlook, but has long said M3 poses no real price risks.
EUR/USD maintained in a tight range around 86.40 after dropping to a 3-week low of 86.27 before again testing resistance around 86.60 in today's session. Sentiment is therefore again turning bearish, but only a move through 86.30 to 86.15 on its way to 85.63 low would put the euro back in full bear mode. Support is seen at 86.0, 85.50 and 85.0. Resistance is viewed at 87.85, 88.10 and the 200-day moving average at 88.50
GBP/USD traded above support at 1.4180 after it tested an overnight 2-week low around 1.4150 after yesterday's downward revision to UK GDP showed the economy was flat in Q4, down from a preliminary estimate of 0.2% growth. The revision caught traders off guard, but did not provoke a break of key support at 1.4140. Follow up support is viewed at 1.410 and 1.4075. Upside capped at 1.4260, 1.430 and 1.4345.
USD/CHF also held above support at 1.7050 and rose to a day's high of 1.7098. However, the pair is seen trading in a tight range after Tuesday's 2 centime surge from 1.6940 to 1.7120. Overnight, the Swiss KoF leading indicator for January rose only slightly to -1.09 from a revised -1.11 in December. The KoF says its indicator signals end to Swiss GDP slowdown by mid - year. However, given the sluggish growth outlook in comparison to recent US data, USD/CHF is expected to add to its recent gains.
Today's data from the US is expected to show Q4 '01 GDP revised upwards to 0.8% from the advanced reading of 0.2%, boosted by stronger spending and helped by the better trade deficit. Later in the morning, traders will assess the Chicago PMI that will likely foretell of a breakthrough in the ISM PMI on Friday. Chicago PMI is forecasted to rise to 47.7 in February compared with the previous month's 45.1 as conditions in the Midwest manufacturing region continue to improve.