The Bank of Japan maintained its uncollateralized overnight call rate steady at a range of 0 to 0.1% by a unanimous vote. The Bank said it “commits itself to continuing the virtually zero interest rate policy until it judges that price stability is in sight on the basis of the “understanding of medium- to long-term price stability.” In order for Japan’s economy to overcome deflation and return to a sustainable growth path with price stability, the Bank will continue to consistently make contributions as the central bank by pursuing powerful monetary easing through the comprehensive monetary easing measures as described above, ensuring financial market stability, and providing support to strengthen the foundations for economic growth.”
The Bank of Japan also held its monetary policy interest rate unchanged in July this year, and announced additions to its quantitative easing program during its August meeting. The Bank last changed its asset purchase program in March this year, when it added a further 5 trillion yen to its target. Japan reported annual headline consumer price inflation of 0.2% in July and June, and 0.3% in both May and April, as Japan finally begins to see some positive inflation figures. The Bank has previously forecast real GDP growth of 0.2-0.6% in fiscal 2011, and 2.5-3.0% in fiscal 2012. The Japanese Yen (JPY) last traded around 77.5 against the USD, and had gained around 8% against the US dollar this year.
Ruble Bearish as Traders Flee Risk; BoM Receives 14B RUS Bailout
The Russian ruble (RUS) has been getting hit by a market environment thick with risk aversion. Heightened sensitivity brought on by a German court ruling, Italy’s debate over an austerity package, and peripheral discussions over Greek debt have all led many investors away from the riskier currencies, including the ruble.
Moreover, as a bittersweet pill taken by the Russian economy lately, the Bank of Moscow (BoM) received a 14 billion ruble bailout from state-backed loans as part of a portfolio diversification program aimed at revamping the lender’s development initiatives following the ouster of its former president, Andrei Borodin, in a hostile takeover by VTB. Borodin has fled to London in fear that he may face jail time due to his connection to $415M in loans issued to the wife of Moscow’s mayor as part of a private real estate project.
The bank will be issuing 100 billion rubles in new shares to its primary shareholder, VTB, this year in connection with this latest move. The issuance of these shares was not expected until the end of 2012, but recent market downturns have moved deadlines forward. The bank seeks to increase and enhance its credit portfolio from a current volume of 30 billion rubles to roughly 200 billion rubles by expanding participation from small and midsized businesses.
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German Court Ruling Grants Limited EUR Support
The decision by Germany’s Constitutional Court to reject lawsuits which challenged the country’s participation in future euro zone bailouts offered limited support to the euro (EUR) in Wednesday’s early trading. Investors are now watching the region closely as the regional interest rate decision by the European Central Bank (ECB) looms large.
The court ruling, while putting some traders at ease about future euro zone stability, was not necessarily considered a positive, but rather the removal of a negative. Concern that the euro zone’s largest economy would opt out of future bailouts made the whole bailout venture look fragile, but taking this fear away does not diminish the real debt problems the region still faces. As an aside, the EUR is also expected to take a hit Thursday as many are forecasting a dovish statement by the ECB regarding interest rates.
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AUDUSD rebounded from 1.0481
Being supported by the lower border of the price channel on 4-hour chart, AUDUSD rebounded from 1.0481, suggesting that a cycle bottom has been formed on 4-hour chart. Further rise towards 1.0764 previous high is expected in a couple of days, a break above this level will signal resumption of the longer term uptrend from 0.9927. Key support is now at 1.0481, only break below this level could indicate that the uptrend from 0.9927 had completed at 1.0764 already.
Gold Analysis 7/9/11: Correction Gains Momentum
XAU/USD 7/9/11
Gold has dropped today as global equity markets rallied and a “risk on” sentiment prevailed. Our analysis yesterday called for a short term drop after a new record Gold price high was printed and the RSI 14 formed a divergence on the daily chart. The CME’s recent increase in Gold trading margins could also now be having some kind of impact on the price of Gold.
XAU/USD daily chart shows bearish RSI divergence
- Our longer term outlook is for further Gold gains in excess of $2000 if current market conditions persist. The increase in gold buying by private entities and central banks continues to drive price higher. A range-bound consolidation period would not be unusual at this stage though after the huge recent gains on XAU/USD.
- Price is currently located at the 50 % retrace of 1703.1 > 1920.8. This level is also aligned with the prominent 11/8/11 swing high and was our initial target in yesterdays Gold analysis post which stated “A correction to the 1815 area, which is the 50% retrace of 1702.67 > 1917.82 and is aligned with price structure support, may be seen in the near term”.
- The ascending trend line which held the last major drop is relatively close to the 61.8% retrace of 1703.1 > 1920.8. This technical area of confluence could see a reaction as Gold bulls look to rejoin the longer term trend to the upside.
- Today’s candle , with a range of 189% of the ADR, is however warning of further potential downside to come; this move represents a near 3% drop on the day and the largest drop in two weeks. A wait-and-see approach could be wise at this stage as these strong down days often see follow through.
Further analysis at http://www.forex-fx-4x.com
XAU/USD 4 hour chart
Eurozone Engine Stalls; German Court Rules Bailouts Legal
Yesterday’s announcement that factory orders in Germany plunged 2.8 percent in July sent shockwaves through the Eurozone. The poor showing had investors scrambling on fears that Germany may no longer be in a position to serve as the “engine” to power the region’s recovery.
By the end of the trading day the euro had declined by more than one percent to close below the $1.40 mark for the first time since the middle of June. European stock markets were in decline as well with the DAX paring a full percent in value on Tuesday while the CAC 40 and STOXX 50 both lost 1.13 percent and 1.28 percent respectively.
Eurostat, the European Union’s statistical office, noted that Eurozone growth fell largely because of the “poor performances” of the region’s two largest economies, France and Germany. According to Eurostat, France recorded no growth in the quarter while Germany could only manage a very disappointing 0.1 percent improvement.
Eurozone Engine Has Stalled
The weakened state of the economy has not been lost on businesses or consumers. For the month of August, German business confidence fell to a four-month low while the consumer confidence index is set to retreat to the lowest level in a year; worse still, there is a greater sense that the weak results for the quarter are merely the start of a longer trend.
The total of the rescue packages provided so far amounts to about 300 billion euros (US$422.1 B) of which Germany – as the region’s largest economy –has provided roughly 25 percent. This has caused a backlash at home for Chancellor Angela Merkel and it is only through great effort that the Chancellor has managed to garner sufficient support to keep the coalition government onside with her efforts to prevent a Eurozone member default.
This task has likely become more difficult in the wake of today’s ruling on the legality of participating in the provision of the emergency bailout packages.
German Court Rules Bailouts Are Legal
Earlier this year, a handful of disgruntled German politicians opposing the use of taxpayer money to bailout other sovereign nations turned to the courts for a ruling on the legality of the bailout deals. At the heart of this legal challenge was the European Union’s “no bailout” clause intended to force all member countries to abide by the deficit and total debt limitations required for acceptance into the Eurozone membership.
The ruling was delivered earlier today and while the actions were found to be legal, the court did add new conditions to future payments. Chief amongst these new rules is the requirement that will force Merkel to gain approval from the German parliament’s budget committee before Germany can contribute to the European Financial Stability Facility (EFSF) or the European Stability Mechanism (ESM) planned for 2014.
While this ruling does clear the way for Germany to continue to act as the leading sponsor for the EFSF, it does raise the possibility that the budget committee may deny Merkel permission to contribute to the bailout funds. Should this happen, there is a strong likelihood that both funds will fall far short of their targets leaving insufficient funds to prevent a Eurozone member default.
Scott Boyd is a currency analyst and a regular contributor to the OANDA MarketPulse FX blog
Hocking Says Hedge Funds’ Positions Show Bearish Stance
Sept. 7 (Bloomberg) — Sam Hocking, head of prime-brokerage sales at BNP Paribas, talks about hedge-fund management amid market volatility and investment strategy. Hocking speaks on Bloomberg Television’s “InBusiness With Margaret Brennan.” (Source: Bloomberg)
Banque du Canada Holds Target for Overnight Rate at 1.00%
The Bank of Canada maintained its target for the overnight rate unchanged at 1.00%; also holding the Bank Rate at 1.25% and the deposit rate at 0.75%. The Bank noted: “In light of slowing global economic momentum and heightened financial uncertainty, the need to withdraw monetary policy stimulus has diminished. The Bank will continue to monitor carefully economic and financial developments in the Canadian and global economies, together with the evolution of risks, and set monetary policy consistent with achieving the 2 per cent inflation target over the medium term.”
Bank of Canada Stands Pat on Key Rate
Canadas central bank kept its key interest rate unchanged today. The Bank of Canada said its overnight lending rate will remain at 1%.
Swedish Central Bank Holds Repo Rate at 2.00%
Sweden’s Riksbank held its benchmark repo rate unchanged at 2.00%. The Bank said: “The concern over public finances abroad has increased and global growth prospects have deteriorated. The slowdown in the Swedish economy is thus expected to be more pronounced than was forecast in July. The Executive Board of the Riksbank has therefore decided to now hold the repo rate unchanged at 2 per cent and to postpone continued increases slightly.”