Review of trades. China and Japan briefly distracted markets

The Tuesday morning began as usual: regional markets lose their fighting spirit, disappointed with the data on business activity in China and the bearish dynamics of Wall Street. Currencies are waiting for the opening of the European session in the ranges, however, and it is unlikely to bring revival into the sluggish range trading. On commodity markets, oil is consolidating near yesterday’s two-year highs.

Bank of Japan in its repertoire
The Bank of Japan passed a verdict on monetary policy and … left everything as it is: the rate at the level of -0.1%, the target yield for 10-year state. bonds – around zero. However, it is unlikely that there will be many people in the market waiting for him to decide otherwise. The regulator lowered the inflation forecast for the current year from 1.1% to 0.8%, but does not see the need for additional incentives, since he believes that the indicator will slowly but surely move to the target value of 2% (recall that in September the basic CPI , which does not take into account energy and food prices, grew by 0.2% year on year, the Central Bank hopes that the business will gradually raise wages, stimulating not only price increases, but also consumption. “For the sake of fairness, the index of business confidence among large enterprises in t the quarter’s growth reached its highest level in almost ten years, and the growth rate of wages in August reached 0.9%, which is also a very good result for Japan.
Meanwhile, the decision was made not unanimously, which is not typical for the Japanese regulator. Goshi Kataoka, new to the board of governors, who came to this post in July this year, voted to expand incentives in the event of further delays towards targeted inflation. Whether he remains a solitary dissident among his colleagues or not is not so important, since the policy of the Bank of Japan still differs sharply from that of other Central Banks, and in this respect, nothing will change in the near future. The Central Bank will continue to pour huge amounts of money into the economy, at least until it is headed by the initiator of the current Haruhiko Kuroda program. His term of office expires in April 2018, but there are rumors that the winner of the election Shinzo Abe will leave him in office for one more term.
In general, the outcome of the meeting can be regarded as moderately positive for the yen, but the currency reacted to it with sluggish indifference, having played most of the growth at yesterday’s session. Obviously, the intrigue surrounding the new chairman of the Fed does not give investors peace of mind. There are rumors that Trump will give the name on Thursday, the day after the FOMC meeting, and it will be Jerome Powell, a politician of cautious views, who shares Yellen’s position. Speculations on this topic have caused a decline in the dollar rate across the entire spectrum of the market.

China disappointed
China published today the index of business activity, and there was nothing to please the markets. The indicator fell, while the worst case was with new orders and prices. Experts explain this by saying that the authorities unleashed a war against environmental pollution and growing debt, and thus dealt a double blow to business. And yet, despite the decline, China has demonstrated not the worst performance this year, which is still in the growth zone. The state of the Chinese economy – the second largest in the world – is of concern to many, its neighbors, including Australia and New Zealand, are particularly sensitive to all changes. The currencies of these countries are declining quite actively in the morning, including under the influence of news from China. One month of decline, of course, is not yet a reason for panic, but the coming months will show how painfully the business took the results of the last congress of the party, which showed a shift in priorities from quantitative growth to quality.

Overview of macroeconomic developments

  • Today we still have to hear a press conference of the head of the Bank of Japan Haruhiko Kuroda. His comments can move the yen in a southerly direction, everything will depend on how he comments on the decision to lower the inflation forecast. In general, no one is waiting for any sensations from him, the Japanese regulator is bored in 98% of cases.
  • The key events of the European session will be reports on GDP in the euro area for the third quarter, preliminary data on inflation for October, as well as a report on unemployment in September. All three indicators are likely to confirm a stable improvement in the European economy, but are unlikely to improve the mood of the market after the cautious position Draghi, voiced by him at the last meeting. Recall that unemployment in the Eurozone for three months is at the level of 9.1% – this is the minimum value since February 2009. And annual inflation settled in the region of 1.5%. Data better than expectations will be able to send the euro to the upper limits of the ranges.
  • At the American session, we are waiting for a report on GDP in Canada and consumer confidence and labor costs in the US, as well as data on PMI in Chicago. The Canadian economy has probably slowed down a bit in the third quarter, but this is not an excuse to sell the Canadian dollar, especially in the context of the dizzying rise in oil prices. American statistics are likely to be favorable, but tomorrow’s decision on the rate will not be affected. And yet the dollar can grow on the wave of optimism and positioning.

Overview of the dynamics of major currencies
Euro / dollar. The pair rose yesterday against the background of a falling dollar across the entire spectrum of the market, but it can not develop a stable upward trend. In the Asian session, the single currency is consolidating with a downward trend and is likely to continue to drift to the south until the publication of makrostatistiki on the Eurozone. Positive data will help her win back some of the losses, but out of the range – unlikely. 1.17 is its ceiling for the short term. The current course is 1.1636.
Pound / dollar. The British currency yesterday showed a good result, returning to the zone above 1.3200. The decline in the dollar and the Bank of England rate increase fuel the optimism of the bulls and smooth out the negative caused by political uncertainty. Now the pound / dollar is trying to gain a foothold above the aforementioned 1.3200 mark, with the following resistance already formed in the 1.3220 / 30 area.
The dollar / yen. The pair has come very close to the level of 113.00 in anticipation of the press conference of Kuroda. The head of the Central Bank may move the yen slightly, but the determining factor for the currency is the yield differential and risk aversion. A breakthrough at 113.00 will lead us to stronger support at 112.80, where the pair is already waiting for buyers.

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