The Bank of Japan decided to keep interest rate unchanged at 0.1% for the 5th consecutive month in a unanimous vote, as widely expected. The central bank will also accept foreign currency-dominated sovereign bonds as collateral, including US, UK, German and French government debts. Economic outlook was somewhat upgraded from deteriorated significantly to deteriorating even though exports and production are beginning to level out. This is the first upgrade since July 2006. The economy is expected to recover in second half of FY2009, earlier than prior expectation of first half of FY 2010.

Outlook in the Japanese yen is rather tricky for the moment. Even though yen crosses have rebounded strongly after drawing support from medium term rising trend lines, the rebound so far lacks decisive momentum to push the crosses through recent high. Markets are hesitating on pushing the Japanese yen further lower along with dollar. DOW managed to close above double top neckline support yesterday but stocks start to look vulnerable. While there is no change in bullish outlook in yen crosses (except USD/JPY), we'll continue to monitor the pairs closely together with stocks on sign that risk aversion is coming back.

The pullback in Sterling, on S&P downgrade, was rather brief yesterday as the pound regained strength quickly. We'd maintaining the near term bullish view on Sterling and expect further rally against dollar, Euro and Swissy. UK's GDP should be confirmed at -1.9% qoq and -4.1% yoy in 1Q09 with the main driver of contraction in inventory and consumer spending while government spending might have partly offset the decline. Index of services should have dropped -1.2%in the 3 months to March, same reading as in February. This would be the 9th consecutive 3-month over 3-month decline.

In Canada, retail sales probably rose +0.5% mom in March from +0.2% a month ago as supported by auto sales. Data released earlier showed that unit auto sales rose +6.3% during the month. However, excluding auto sales, the gauge should have dropped -0.2% after gaining +0.6% in February.

Dollar index's fall extended further to as low as 80.22 so far and is still in progress to mentioned target of 100% projection of 89.62 to 82.63 from 86.87 at 79.88. Nevertheless, we'd maintain that such decline is treated as either a correction to rise from 77.69, or being part of a large range consolidation pattern from 88.46. Hence, downside is expected to be contained above 77.69 low, possibly by 80 psychological level. On the upside, above 81.41 will turn intraday outlook neutral and bring consolidation. But break of 83.22 resistance is needed to be the first signal that dollar index has bottomed out. Otherwise, short term outlook remains bearish.

USD/JPY Daily Outlook

USD/JPY's fall resumed after brief recovery and dived to as low as 93.85 so far. At this moment, intraday bias remains on the downside as long as 95.24 minor resistance holds. With a head and shoulder top reversal pattern (ls: 99.67, h: 101.43, rs: 99.71) formed, further decline should now be seen towards 61.8% retracement of 87.12 to 101.43 at 92.58 first. Break there will target 87.12 low next. On the upside, above 95.24 will turn intraday outlook neutral again and bring consolidation. But upside should be limited below 96.68 resistance and bring fall resumption.

In the bigger picture, medium term outlook in USD/JPY remains bearish as USD/JPY is still limited well below trend line resistance (124.13 to 101.65) as well as 55 weeks EMA. Rise from 87.12, which is treated as a correction in the down trend from 124.13, should have completed with bearish divergence condition in daily MACD and RSI, with a head and shoulder top pattern. Further decline should now be seen to retest 87.12 low first. Break there will confirm down trend resumption for next key support level at 79.75 (95 low). On the upside, above 96.68 is needed to invalidate this view. Otherwise, outlook remains bearish.


Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised
3:30JPYBoJ Rate Decision0.10%0.10%0.10%
8:30GBPU.K. GDP Q/Q Q1 P-1.90%-1.90%
8:30GBPU.K. GDP Y/Y Q1 P-4.10%-4.10%
8:30GBPU.K. Index of Services (Mar-1.20%-1.20%
12:30CADCanada Retail Sales M/M Mar0.50%0.20%
12:30CADCanada Retail Sales Less Autos M/M Mar-0.20%0.60%