One Week Until ECB, But First the BOJ

The May 2 ECB decision is quickly being circled on every trader's calendar. The euro lagged Thursday on speculation about a rate cut while the pound jumped on better GDP. Today's Bank of Japan decision isn't expected to be dramatic but after the fireworks last month, traders should be on guard. Premium clients holding on to the existing USDJPY trades are positioning on reports that the BoJ will raise its 2014 CPI outlook to1.5% from 0.9% and announce its 2015 CPI outlook to around 2%. These trades are in the latest Premium Insights.

The euro was slammed after a failed attempt at 1.3100 in early US trading. The turnaround sent it below 1.3000 as the dam broke and a flood of analysts began forecasting rate cuts. Bloomberg has now surveyed 42 economists and 26 expect a cut while 16 expect rates to remain at 0.75%, if anything several of the 16 will switch sides in the days ahead.

The euro touched a three-week low on Wednesday and the turnaround Thursday was another damaging sign for the bulls.

The euro has also been unable to rally despite upbeat risk sentiment. US initial jobless claims numbers were solid and that boosted stocks and commodities. Claims improved to 339K compared to 350K expected. US first quarter GDP numbers are Friday.

Yen trading has been quiet in the lead-up to the Bank of Japan decision despite some headlines suggesting more weakness is on the way. Nikkei reported that Japan will propose investing its FX reserves in ASEAN bonds at an upcoming meeting. Strong demand at a US 7-year Treasury auction also pointed to the possibility of Japanese buying.

The expectations for this BOJ meeting are at rock bottom. There is no hint of any concrete moves. The lone point of interest is when the BOJ will forecast 2% inflation but Nikkei reported today it will be for the 2015 fiscal year. That said, Kuroda has already shown that he's pretty good at playing down expectations and then blowing them away, so the market will be on guard.