Intraday Market Thoughts

Japan Drives Yen Lower as Markets Look to ECB

by Kyle Morrison
Aug 4, 2011 7:15

Bank of Japan decides enough is enough and also eases policy further, Bank of England set to stay pat on rates and stimulus, while markets look to European Central Bank to stabilise bond markets and leave rates unchanged. US slowdown fears increase ahead of weekly jobless. Link to the latest THURSDAY TRADES are below.

This mornings intervention in the currency markets by the Japanese authorities has driven the yen lower as policymakers in Tokyo decided to follow in the footsteps of the Swiss National Bank yesterday, and take measures to arrest the yens rise. The Bank of Japan also announced additional monetary easing in the form of another 10trn yen, increasing the amount to $630bn in order to ease the pressure on their exporters who are being hurt by the yens rise.

We have added NEW PREMIUM TRADES in USDJPY & EURUSD after all targets from Wednesday's & Monday's initial dual trades (initially posted Wed 19:15 GMT) hit all targets in Thursday Asia. New updates made Thursday 2:00 GMT (Wednesday 22:00 EST) Subscribers can see the trades here NONsubscribers can go here:

This month's task by the Bank of England may well have been made somewhat easier yesterday when services PMI for July confounded expectations with a rise to 55.4, its strongest reading in four months and well above expectations for a decline to 53.6. This better than hoped for figure more than made up for the surprise fall in manufacturing on Monday, and has also in all likelihood delayed the growing calls for the consideration of further monetary stimulus as a solution to the problem of a slowing growth cycle.

Market expectations are for the Bank of England to stand fast on interest rates at 0.5%, though the minutes will probably make interesting reading to see whether or not anyone else has started to become more dovish with respect to the recent slowdown in economic data.

The European Central Bank will then take its turn in the spotlight, and given this weeks turmoil in Europe in Spain and Italy, markets will be looking to the ECB to restart its bond buying program in the absence of any other support mechanism, as a stop gap measure, until EU leaders can get the necessary parliamentary authority to allow the EFSF to act as a buyer of European bonds.

Markets are not expecting any change in policy and rates are expected to remain at 1.5%, however it will be at the press conference that the real action will take place.

Trichets every word will be scrutinised for every nuance with respect to his feelings about the outcome of the July EU summit, and the agreement with respect to haircuts on Greek bonds. The banks policy on inflation and rate policy, will also be put under laser like scrutiny in light of the pressure on Spanish and Italian bond yields, as well as strong vigilance, given Noyers remarks last week.

Yesterdays disappointing ISM services numbers did nothing to assuage fears about the US economy despite July ADP numbers coming in ahead of expectations. Todays weekly jobless numbers could go some way to helping bolster sentiment ahead of tomorrows key US employment report for July.


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