USD/JPY: BOJ Will Buy What GPIF Supply

GROWTHACES.COM Trading Positions

GBP/USD: long at 1.5970, target 1.6130, stop-loss 1.5920

USD/CAD:long at 1.1170, target 1.1290, stop-loss 1.1110

EUR/CHF: long at 1.2085, target 1.2100, stop-loss 1.2045

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USD/JPY: BOJ will buy what GPIF supply

(we are waiting for a correction to get long again)

• After a tight 5-4 vote by its board members, the Bank of Japan decided to increase the pace at which it expands base money to about JPY 80 tr per year. Previously, the BOJ targeted an annual increase of JPY 60-70 tr. The Bank of Japan said it would accelerate purchases of Japanese government bonds by JPY 30 tr and extend the average duration of government bonds holdings to around 10 years.
• The BOJ shocked the markets by unexpectedly easing policy further. Before today's decision, BOJ governor Haruhiko Kuroda had been relentlessly optimistic that the monetary stimulus he released 18 months ago would succeed in strengthening an economic recovery and ending 15 years of deflation.
• The Bank of Japan cut in half its economic forecast for the current fiscal year. The central bank said it now expects real GDP to increase 0.5% in the current fiscal year to March 2015, versus the 1.0% growth it forecast in July.
• The BOJ also slightly lowered its CPI forecast for fiscal 2014 and fiscal 2015. It now expects core consumer inflation of 1.2% in the current fiscal year, followed by 1.7% in the next fiscal year and 2.1% in fiscal 2016/17. In its previous forecasts made in July, the BOJ projected core consumer inflation of 1.3% in the current fiscal year, 1.9% in the following year and 2.1% in fiscal 2016/17. The BOJ still expects to meet its inflation target within the two-year timeframe it originally set out.
• The Government Pension Investment Fund (GPIF) approved plans to raise its holding of domestic stocks to 25% of its portfolio from a current 12%. The fund raised the target for foreign bonds to 15% from 12%. The Japanese government bonds allocation was cut to 35% from 60%. Kuroda said the BOJ's easing was unrelated by to portfolio allocations by the GPIF, but the effect of the day's two major decisions means that the central bank steps up its buying of Japanese government bonds, offsetting the GPIF's increased sales of them.
• Japan Finance Minister Taro Aso is the opinion that BOJ's additional easing will support Japan's economy. He added that BOJ's decision was not directly related to government decision on whether to raise sales tax. Economy Minister Akira Amari said BOJ's easing decision had been based on monetary, financial and economic outlook. In his opinion BOJ's decision and government decision on next sales tax hike are related but separate.
• Japan's annual core consumer inflation slowed for a second straight month in September. Core consumer price index, which excludes volatile prices of fresh food but includes oil products, amounted to 3.0% yoy, in line with expectations, down from 3.1% yoy in August. Stripping out effects of April's sales tax increase to 8% from 5%, the annual core consumer inflation was 1% in September, halfway to the BOJ's target.
• Unemployment rose in September to 3.6% from 3.5% a month earlier. Household spending rose 1.5% mom and fell 5.6% yoy in September after a fall by 4.7% yoy in August. Household incomes, meanwhile, fell by 6% yoy in real terms.
• Traders were shocked after the BOJ decision. There was a risk that the central bank drops its upbeat assessment of the economy, but no one expected additional easing. As a result the USD/JPY surged past its October 1 high of 110.09 rising as far as 111.53, its highest level since January 2008. But it was not the last word. The JPY is still under pressure. The nearest resistance is the psychological level at 112.00. We are waiting for a correction to get long again.

Significant technical analysis' levels:

Resistance: 112.00 (psychological level), 112.32 (61.8% 135.20-75.31), 113.00 (psychological level)

Support: 110.19 (hourly low Oct 31), 109.33 (hourly low Oct 31), 109.18 (session low Oct 31)

EUR/USD: A rise in inflation did not help the EUR

(we have placed sell offer at 1.2660)

• Consumer prices in the euro zone rose by 0.4% yoy in October, in line with expectations, the day after inflation in Germany, Europe's largest economy, slowed in October to 0.7% yoy, its lowest reading since May.
• Services prices rose the fastest 1.2%, followed by the 0.5% increase for food, alcohol and tobacco. Unprocessed food prices fell 0.1% yoy in October while energy was 1.8% cheaper. Excluding unprocessed food and energy, prices rose 0.8% yoy in October, a stable rate from September.
• Unemployment rate in the euro zone remained unchanged vs. the previous month and amounted to 11.5% in September.
• The U.S. economy grew 3.5% from July through September. The third quarter expansion was driven by strong gains in business investment, exports and the biggest jump in military spending in five years. Consumer spending grew at a 1.8% annual rate, below the 2.5% increase in the second quarter. Export sales went up 11%, far outpacing imports, which fell at a 1.7%. The smaller trade gap added 1.3 pp. to growth in the third quarter. Defense spending rose at a 16% rate and business spending on equipment grew at a 7.2% rate in the third quarter.
• Federal Reserve Chair Janet Yellen gave a speech prepared for a diversity conference at the central bank in Washington. She did not comment on monetary policy or the economic outlook.
• The EUR/USD after a short recovery in the US session yesterday broke below 1.2600 again in Asian session. Currency bears target the 2014 low at 1.2501. The nearest support level is 1.2540 (today's session low). A slight increase in inflation did not help the EUR. GrowthAces.com maintains the downside bias and is looking to get short near 1.2660.

Significant technical analysis' levels:

Resistance: 1.2617 (session high Oct 31), 1.2639 (high Oct 30), 1.2653 (hourly high Oct 29)

Support: 1.2540 (session low Oct 31), 1.2504 (low Oct 6), 1.2501 (low Oct 3)

NZD/USD: Quiet finish of the eventful week

(we are looking to get short at 0.7950)

• The number of new dwelling consents approved in New Zealand fell a seasonally adjusted 12.2% mom in September, the largest decline in two-and-a-half years, but were up 8.6% yoy. Excluding consents for apartments, which can fluctuate widely, the number of seasonally adjusted permits fell 10.4% mom.
• The NZD/USD rose yesterday in U.S. session to 0.7860 on improving risk appetite. Weak data on residential building consents pushed the NZD/USD down to the range of 0.7820/40. The NZD/USD went up again after the BOJ's decision to 0.7878.
• The NZD/USD reached our stop-loss level at 0.7860, but we have taken profit on our short NZD/USD position 0.7920-0.7860. The NZD/USD traders are focused on the release of the New Zealand's employment report (scheduled for November 4, GMT) and the Fonterra GDT auction.
• GrowthAces.com is looking to get short again. We have placed our sell offer at 0.7950.

Significant technical analysis' levels:

Resistance: 0.7959 (high Oct 28), 0.8000 (psychological level), 0.8036 (high Oct 21)

Support: 0.7884 (low Oct 28), 0.7795 (low Oct 24), 0.7708 (low Sep 29)

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