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Fundamental Picture

Last week was a very crazy one, to say the least.

In Japan, new Bank of Japan (BOJ) Governor Haruhiko Kuroda finally walked the talk. He made aggressive changes to the central bank’s quantitative easing program, hoping that they would enable the Japan to reach a 2% inflation rate in two years.

The first major change was the doubling of the monetary base to 270 trillion JPY from 135 trillion JPY which increases the monthly asset purchase from 3.4 trillion JPY to 7 trillion JPY. Next, the BOJ would allow the purchasing of bonds that have maturities of up to 40 years. Previously, they only bought bonds that matured in 3 years or less.

In the euro zone, the European Central Bank (ECB), did not make any changes to its monetary policy. However, they hinted at further easing if the need arises. This turned out bearish for the euro, as the central bank already had a negative outlook for euro zone’s economy. The sell-off did not last though. In the press conference that followed, the ECB assured markets that Cyprus’ bailout would not serve as a precedent for other euro zone members.

In the U.K., the Bank of England (BOE) also opted to keep its quantitative easing program as is. No changes were made to both the asset purchase program and interest rates.

And lastly, in the U.S., the non-farm payrolls (NFP) greatly missed forecast. It showed that only 88,000 jobs were added, significantly lower than the 198,000 consensus. The dollar responded fundamentally to the result, trading lower versus other major currencies.

Potential Trades:

USD/CHF: Bearish

USD/CHF 1-hour Chart

With price marking a new swing low and trading below both the 200 and 100 SMAs, I think there’s still room for it to head lower. I’m not sure when the trend will continue, so I’m going to play it safe and watch the 61.8% Fibonacci retracement level. If price pulls back to that level, I’m going to consider going in short.

USD/JPY: Bullish

USD/JPY 1-hour Chart

I think that we’ll continue to see the yen get sold off in the next few days given the BOJ’s recent decision. I’m anticipating a retracement in USD/JPY before it pushes higher. Looking at the hourly timeframe, I see that the 61.8% Fib level coincides nicely with the 97.00 handle where the pair previous found resistance. I’ll be on my toes for reversal candlesticks around the area.



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