MasterForex: Focus on the interest rate decisions of the European and British central banks - masterforex

by master0722 on 2011-08-04 17:23:15

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This morning, the Japanese government announced its intervention in the foreign exchange market, causing an instant 100-point rise in the yen. It is reported that the total amount of intervention by Japan's Ministry of Finance may reach 500 billion yen. At exactly 9:00 Beijing time, Japanese Finance Minister Yoshihiko Noda held an emergency press conference, stating that the authorities had intervened in the foreign exchange market. Noda also indicated that they would continue to closely monitor the market, refused to comment on the scale of the intervention, and would not disclose which currencies Japan had bought or sold. They also wouldn't comment on whether further interventions would occur. Additionally, the Policy Board of the Bank of Japan will begin a meeting at 10:15 Beijing time to discuss the yen exchange rate issue. In response, Bank of Japan Governor Masaaki Shirakawa stated that the Bank of Japan would shorten the duration of its monetary policy meeting. Japanese media reported that the Bank of Japan would make a decision on further easing monetary policy on Thursday.

We have tirelessly explained for nearly two weeks now that the Japanese government might intervene in the market, and today it has finally come to pass. We wonder if investors have become quick responders. This round of intervention by the Bank of Japan will not stop until stop-losses are triggered, so investors can continue to hold positions.

Yesterday, risk aversion was still the main theme in the market. Due to the recent poor economic data released by the U.S., concerns about the slowing recovery of the U.S. economy continued to grow, causing the dollar to be heavily sold off and resulting in a sharp decline. Conversely, yesterday’s data from Europe was somewhat better, driving the euro higher. Today’s European Central Bank and Bank of England interest rate decisions, as well as tomorrow's U.S. non-farm payroll data, etc., could cause the market to shift back to risk aversion, which would quickly end the rebound of non-U.S. currencies.

USD/JPY:

This morning's intervention was not conducted by the Bank of Japan but by Japan's Ministry of Finance. The Bank of Japan will start its meeting at 10:00, so the market should maintain some patience regarding this. USD/JPY may rally towards 80 in the future, so investors who went long earlier can continue to hold their positions. However, overall, the Bank of Japan may not be able to reverse the market trend, so long-term holding is not advisable.

EUR/USD:

The euro showed strong momentum yesterday. Better-than-expected June retail sales month-over-month and year-over-year rates, along with the July services purchasing managers' index, were generally positive for the euro. The improvement in economic conditions benefited the euro, driving it to exhibit a V-shaped rebound yesterday. Today, the European Central Bank will hold its interest rate meeting, and the market expects no interest rate hike, so a significant increase in the euro today is unlikely.

In terms of European debt, although Cyprus has requested assistance, its economy is small, so its impact on the market is relatively limited. Additionally, Italian Prime Minister Berlusconi stated that Italy has solid economic and financial system fundamentals, which drove the euro higher again. Given the upcoming U.S. non-farm payroll data on Friday, the market may not immediately break through the key level of 1.4400 effectively. It is recommended to take profits at high levels and wait for the non-farm payroll data.

GBP/USD:

The UK's July services purchasing managers' index (PMI) rose to 55.4, the highest since March, exceeding the forecast of 53.2; June was 53.9. Better-than-expected data supported a significant strengthening of the pound. However, a single good data point is unlikely to sustain the overall trend of the pound. Additionally, attention should be paid to today's Bank of England interest rate decision. An interest rate hike is unlikely today in the UK, and the key lies in whether the quantitative easing scale will be expanded, which will be a turning point for whether the pound moves higher.

Today, there is a possibility of testing the previous high of 1.6475. If it cannot effectively break through, we tend to go short on the pound. However, caution is needed before the non-farm payroll data is released, and today's Bank of England interest rate decision must also be watched. The expected trading range for today is 1.6200-1.6500.

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