The main currency theme this week is Central Bank's quantitative monetary easing. It all started when on Tuesday The Bank of Japan(BOJ) accelerated it easing policy as economic outlook deteriorated. The central bank cut the collateral overnight call rate to 0-0.1% from 0.1% and decides to create a 5 trillion yen fund to buy government bonds and other asset.
BoJ is seen by many as just a start of another wave of easing from world major central banks. The Fed and BoE are both expected to follow in near term. Euro is somewhat supported by speculation that ECB will only have the unlimited funds to maturity until early next year and the bank has not hinted on extension yet.
BoE policy makers opted to leave both interest rate and the Asset Purchase Facility unchanged at 0.50% and 200 billion pounds respectively, inline with forecasts on Thursday.
In US, disappointing employment data spurred speculation that Fed might opt for an aggressive QE II rather than a modest one to boost job growth and economic recovery. Bad US data means more likelihood of QE, which is USD negative.
In Asia, Central banks including the CBC, BSP, BoK, & BNM (Taiwan, Philippines, South Korea and Malaysia respectively) were rumored to be actively participating in the FX market in order to stem the ebb and flow of trade.
GBP/USD has been on the uptrend since Thursday of the previous week as US dollar weakened . In the first three days, the pair was unable to break through the previous week high of 1.5921. By Thursday, the pair managed to penetrate 1.60 level and touched the target resistance level at 1.6018 before taking a breather to a low of fibo 61.8% at 1.5825.
The short term outlook for the pair is still bullish with a penetration above the previous high of 1.6018 is expected to be met with resistance at 1.6118. Near support level is at 1.5852 with next support ance at last week’s low at 1.5751.
The ringgit consolidate below 3.1125 despite almost all major currencies appreciated against the Us Dollar. It we look at USD/SGD pair, it has been steadily tracking downward. This clearly indicated that BNM has been intervening in the fx market.
With central bank manipulation is quite a task to determine the ringgit movement. However, the pair look to be consolidating waiting for any BNM action or the effect of US dollar venerability.
