Risk appetite is given a lift today led by banks, as EU failed to resolve a row over new rules to control hedge funds. The vote was delayed for couple more months in a reprieve for UK, which fears that too-tight regulation could drive the industry from London. Also, Greece concerns eased a bit after EU finance ministers said a blueprint for financial help was laid down. The exact form for assistance is still unknown but it could be some form of bilateral loans. The emergency loan would be provided if Greece's plan for EUR 4.8b cut in deficit fails.
Data from US is slightly better thane expected with housing starts at 575k, building permits at 612k in February. Import price dropped -0.3% mom in February. German ZEW came in better than expected at 44.5 even though it's the 6th consecutive month decline in March. Meanwhile, Eurozone ZEW disappointed by dropping to 37.9.
FOMC will take center stage next. Fed is widely expected to leave the policy rate unchanged at 0-0.25%. While we expect wordings of keeping 'exceptionally low levels of the federal funds rate for an extended period' will be retained in the accompanying statement, the language will be modified in 2Q10 as economy improves further and the Fed begins to withdraw excess liquidity from the market. More in Will the Fed Retain the 'Extended Period' Wordings?
The Bank of Japan will be the focus in the coming Asian session. BoJ will likely extend the duration and expand the size of the new lending facility (launched in December) so as to fight against deflation. We expect the central bank to double the amount of money injected through its new operation from the current 10 trillion yen to 20 trillion yen, while duration will be extended from 3 months to 6 months. More in BOJ to Extend and Expand QE
USD/JPY Mid-Day Outlook
Daily Pivots: (S1) 90.30; (P) 90.57; (R1) 90.78; More.
USD/JPY rebounds strongly after dipping to 89.97 earlier today but upside is still limited below 91.08 resistance. Intraday bias remains neutral and more sideway consolidation could still be seen. Nevertheless, note that rise from 88.13 is still expected to continue as long as 89.62 cluster support (50% retracement of 88.13 to 91.08 at 89.60) holds. Break of 91.08 will target near term trend line resistance (now at 91.34) and then 92.14 resistance. However, note that decisive break of 89.62 cluster support will indicate that rise from 88.13 is possibly finished and will flip intraday bias back to the downside for retesting this low.
In the bigger picture, outlook is rather mixed and we'll stay neutral for the moment. On the upside, break of 92.14 resistance will confirm that whole decline from 93.74 has completed with three waves down to 88.13 already. The corrective structure will in turn indicate that rise from 84.81 is still in progress for another high above 93.74. On the downside, break of 88.13 will reaffirm the bearish case that rise from 84.81 is completed at 93.74 already and will turn focus to 87.36 support for confirmation.