Yen to Dip on Japan Expanding its Monetary Base

31.10.14

Yen to Dip on Japan Expanding its Monetary Base

Central bank policy biases have started driving forex price action in the past week, as the FOMC and the BOJ gave their rate statements. The US dollar drew strong bids and might continue to do so in the coming week, as the Fed confirmed that they might still be ready to hike interest rates sometime next year. Strong US GDP of 3.5% might keep supporting the Greenback throughout the week, as this sets the US economy apart from most of the major economies that are suffering setbacks.

In particular, the Japanese economy has shown further weakness, leading the BOJ to decide to expand its monetary base. This could lead to more yen selling for the next few days, as inflationary pressures are weakening in the country. Retail sales, a speech by BOJ Governor Kuroda, and the BOJ policy meeting minutes could still move the yen during the latter half of the week, although the path of least resistance is to the downside for the Japanese currency.

As for other central banks, the Reserve Bank of Australia will take its turn this week, with their rate decision set for Tuesday. No monetary policy changes are expected, although Governor Stevens and his men are expected to retain their cautious stance. They could also take this opportunity to remind market watchers that the Australian dollar is still high by historical standards and that this might weigh further on inflation.

Other reports that might move the Australian dollar include the retail sales and trade balance figures, which could add support to the RBA’s economic assessment. Bleak figures could show that the Land Down Under is starting to feel the weight of the slowdown in China, which might then lead to a risk-off market environment.

In New Zealand, the jobs data could be the main mover of Kiwi price action, along with the dairy auction towards the end of the week. The trade balance is also up for release and it might show how the recent slide in commodities and Kiwi appreciation have affected export activity. Meanwhile, the quarterly jobs report could show another gain and be enough to support the New Zealand dollar throughout the week.

Speaking of jobs releases, the US non-farm payrolls report for October is also up for release this week and it might be crucial in determining whether the dollar could extend its rallies or not. Bear in mind that the Fed recently upgraded its assessment of the labor market and a strong NFP reading might add fuel to the dollar’s climb, as it would convince more traders that a rate hike is likely early next year

As for the UK, the BOE is set to make its interest rate statement as well, but this event barely moves the markets as traders would rather wait for the minutes of their meeting to be released.

Manufacturing data might also be in the driver’s seat for pound price action, with the manufacturing PMI and manufacturing production data due. Services and construction PMI are also up for release, with improvements likely to remind traders that the BOE is looking into the idea of tightening policy next year as well

From the euro zone, only medium-tier reports are on tap, such as the manufacturing PMI from the smaller euro zone nations and the German factory orders report. EU economic forecasts are also up for release and this could lead to euro weakness if officials agree that a technical recession is in the cards for the region.

All in all, monetary policy biases are still likely to cause strong moves across the forex charts, with a few top-tier releases in the labor sector set to provide support or cast doubts on the central banks outlook.