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At 7:00 AM BoE MPC meeting (exp 4.0%, prev 4.0%) At 7:45 AM ECB meeting (exp 3.25%, prev 3.25%)
The yen added to its weeklong gains exploding through key options positions to hit 10-week highs of 129.40 and 113.57 against the dollar and euro. Supporting the yen were signs that US fund managers would increase their exposure to Japan just as government officials have created an artificial floor under share prices through stricter short selling laws. Combined with repatriation fears, and the government's resolve to boost Japanese assets ahead of March 31, JPY is likely to fend off the negative news that comes its way.
Case in point was yesterday's announcement from Moody's that there was a significantly high probability a current review will lead to a two-notch cut in Japan's rating. Moody's put Japan on review in mid-February and at the time warned that a two-notch cut in the present Aaa3 rating was a risk. Today, Moody's announced in its report that Japan's current measures to fight deflation and revive the ailing economy are insufficient and stimulating inflationary expectations would be a solution. Friday's Q4 GDP is also expected to show a 1% contraction after a 2.1% fall in Q3.
Nevertheless, JPY has recovered sharply from its last test of 135 resistance, rising over 4% in the past 7 trading days and the dollar is now threatening chart support at 129.30. However, given the short-term factors supporting the beleaguered currency, support at 127.75, which marks the 38.2% retracement of the 115.75-135.15 move, should provide a solid base. Support seen at 129.30, 128.75 and 128.00 and 127.75. Resistance is eyed at 130.50, 130.90, 131.50.
EUR/USD is trading near a 2-week high of 87.80 against the dollar, despite falling to a new 10-week low of 113.57 yen in Tokyo trade. EUR/USD is likely to hold steady before today's rate announcement from the European Central Bank, which is expected to keep rates steady at 3.25%. Having broken the near-term resistance of 87.55, EUR/USD will now eye the more challenging target of 88.10 cents, which is the 50% retracement of the slide from the year's high of 90.63 to the year's low of 85.63. From there, the euro faces its next resistance at 88.50. Support is viewed at 87.0, backed by 86.65 and 86.30.
Meanwhile, GBP/USD has again stalled in front of resistance at 1.4246 after a strong move in EUR/GBP from trendline support at 61.15 to 61.64 kept sterling under pressure. On Tuesday, cable fell to a day's low of 1.4204 after twice failing to break strong resistance seen at 1.4240/50. Sterling will also likely be subdued ahead of today's Bank of England monetary policy committee meeting. The majority of economists believe that the BoE will keep rates steady at 4.0%, particularly after the central bank governor Eddie George made comments with the intent of dampening market hopes for interest rate hikes later in the year. Resistance is eyed at 1.4240/50, 1.4280 and 1.430. Support holds at 1.4180 and 1.4130.
USD/CHF is trading steady around 1.68 after Swiss GDP Swiss Q4 GDP up 0.1% vs Q3 revised to -0.3% from +0.1%. Despite the weak growth, the Swiss National Bank's next monetary policy decision on March 21, is not likely to produce a rate change. A survey projected that Q4 GDP would fall to 0.35% or even as low as -1.5% from the previous quarter's 1.0%, highlighting the weakness in the Swiss economy. Support is seen at the 1.680-franc figure. Upside capped at the 200-day moving average of 1.6856.