Asian Session Forex Recap – July 26, 2016

  • Japan’s price of services purchased by corporations remains at 0.2% vs. 0.1% expected

Geronimooooo!!! The yen crosses fell across the board following speculations that the Japanese government stimulus may not live up to market expectations. What’s up with that?!

Major Events:

Stimulus lite for Japan – The yen clobbered its counterparts today after reports hinted that the government stimulus coming this year might be waaay lower than initial market estimates.

Word around the hood is that the government just handed ruling party Liberal Democratic Party a document listing its proposed projects for the next spending package. The Nikkei newspaper revealed that the plan would include 6 trillion JPY worth of new spending, though only about 2 trillion JPY will be added to the supplementary budget this year.

6 trillion, though double the 3 trillion originally hinted by the Finance Ministry, is still peanuts compared to the 20-30 trillion JPY package that market players had priced in a couple of days back. Naturally, the news inspired the yen bulls (and profit-takers) to come out and play.

More easing from the BOE? – The pound got one-two punched by a combo of a dovish MPC member and the U.K.’s banks apparently preparing for negative interest rates.

A Financial Times report cited an interview with BOE Monetary Policy Committee (MPC) member Martin Weale, who listed down weaker-than-expected PMIs and weak wage growth (even before the EU referendum) as reasons why he has changed his mind and is now favoring immediate stimulus. Duhn duhn duhn.

Meanwhile, a high street bank has made fears of having to “pay to save” a bit closer to reality. In a letter to its customers, NatWest, a taxpayer-owned bank (whose parent company is the Royal Bank of Scotland), said that “Global interest rates remain at very low levels and in some markets are currently negative. Dependent on future market conditions, this could result in us charging interest on credit balances.”

This marks the first time that a U.K. bank has told its customers to prepare to either pay to hold their money or to move them elsewhere. If other banks follow suit, then it suggests that they also expect the BOE to slash its rates aggressively and even implement a negative interest rate.

Major Market Movers:

JPY – The yen was king of pips during the Asian session, thanks to expectations that the government stimulus would only amount to a fraction of the initial estimates.

USD/JPY is down by 97 pips (-0.92%) to 104.82, EUR/JPY is down by 108 pips (-0.93%) to 115.18, and GBP/JPY is down by 212 pips (-1.53%) to 136.80.

GBP – The pound dropped across the board following reports that an MPC member is now favoring immediate stimulus.

GBP/USD is down by 16 pips (-0.12%) to 1.3117, EUR/GBP is up by 23 pips (+0.28%) to .8392, and GBP/AUD is down by 55 pips (-0.31%) to 1.7525.

Watch Out For:

  • 9:30 am GMT: U.K. BBA mortgage approvals (40.2K expected, 42.2K previous)

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