Spooky

It couldn’t get spookier than this for Halloween special on the forex dance floor.

Ms. USA was so terrified that she jumped high all the way up above and beyond expectations against the Japanese Yen. And the Japanese yen… he was terrified alright.

Here is the deal:

Friday’s Asian session started with Australia’s quarterly PPI release , and a whole bunch of worse than expected data out of Japan. The household spending, Tokyo core CPI and Japan’s unemployment rate were all out right at the beginning of the Asian session, followed by Japan’s monetary policy statement that put the poor Mt. Japanese Yen in a horrible position. We have the  Bank of Japan outlook report and press conference later in the day. the Japanese government throw the kitchen sink at their (lack of) inflation problems. The Bank of Japan announced further monetary easing measures, increasing government bond buying by 30 trillion Yen ($270bn) and expanding its overall bond purchases by about 25-30%. To help them spend the money they’re printing, they’re broadening the assets that they allow themselves to invest in.

On top of this, the GPIF (Japan’s national pension fund -the world’s largest) announced that it would change its asset allocation to allow investment in shares of up to 25% of its portfolio, something that had previously been rumoured. The upshot of all of this; The Nikkei rallied 5% to hit highs last seen in 2007, whilst the Yen fell almost 2% against the Dollar.

Given the Fed’s more hawkish comments on Wednesday evening, we had our suspicions that the GDP number would be a good one – it was. The 3.5% reading beat expectations by half a percentage point and solidified belief that the world’s largest economy has turned a corner. However, a large chunk of this number can be attributed to government spending. The share of the 10% increase in federal spending went towards military purchases, but it’s still spending all the same and it’s not as if the US government have a massive debt pile already, so what’s the harm – oh, wait, they do.

The market was a little slow to react at first, but equities finished the day higher and the US Dollar made slightly more ground on its major counterparts, despite having to overcome month end flows, which traditionally favor Dollar selling.

Investors were also upbeat after Ukraine and Russia reached a deal on winter gas supply. Ukraine will clear about $3bn in debt and also pay $1.5bn in advance for enough gas to see them through the winter. The agreement, negotiated by the EU, is a weight off many a shoulder, not least Ukraine and, assuming both parties keep up their side of the deal, should be a step in the right direction for relations between the two – though whether Putin has other ideas in his grand design, who can tell. He’ll probably be glad of the Dollar income though. Yesterday the Russian Central Bank moved the trading band up again for the Ruble, but failed to intervene in the FX market to try and sustain its value, as it is becoming too costly to do so.

UK consumer confidence has taken a bit of a hit, with the drop being put down to a slowdown in the rapid recovery that we saw in the first half of the year. Nothing to worry about for the time being, but it has hurt Sterling a little overnight.

We’re pretty sure that this scheme won’t work in the long run (and we’re sure there will be a lot of in depth articles in the weekend press that will give plenty of reasons why it won’t) but with the GPIF now able to buy global equities, markets will probably believe they’ve got a solid alternative to QE3 – roll on new highs in stock markets, but take caution that this is almost certainly a house built on sand.

Data today is pretty irrelevant and equity futures are up by between one and two percent on the Japan news, but for those that are interested (and are not interested in getting dressed up for Halloween) , European inflation and unemployment followed by US inflation and the Michigan survey are what’s in store.

Boo.

Intraday Forex Technical Levels

EUR/USD 4-hour: Reaching bearish target.

Invest Diva Likes: Short positions below 1.2586 with targets at 1.2511 and 1.2442 in extension.

If Pair Goes Nuts: Above 1.2586 look for further upside towards 1.2661 and 1.2753.

What’s up on the Forex Dance Floor: The pair is broke below the support level at 1.2586 below the Ichimoku’s cloud and reaching a previous bottom at 1.2511. The RSI is around the oversold zone.

Supports and Resistances
1.2753

1.2661

1.2586 Pivot point

1.2511

1.2442

GBP/USD 4-hour: Moving down.

Invest Diva Likes: Short positions below 1.6025 with targets at 1.5942 and 1.5882.

If Pair Goes Nuts: Above 1.6025 look for further upside towards 1.6114 and 1.6186.

What’s up on the Forex Dance Floor: The pair confirmed below the neckline a double top pattern which coincides on the 23% Fibonacci level, and the Ichimoku’s cloud at 1.6025. The RSI is below the neutrality area.

Supports and Resistances
1.6186

1.6114

1.6025 Pivot Point

1.5942

1.5882

NZD/USD 4-hour: Moving down.

Invest Diva Likes: Short positions below 0.7895 with targets at 0.7797 and 0.7707.

If Pair Goes Nuts: Above 0.7895 look for further upside towards 0.7969 and 0.8131.

What’s up on the Forex Dance Floor: The pair broke below the Ichimoku cloud and teasing a key support level at 0.7797. The RSI is below the neutrality area.

Supports and Resistances
0.8131

0.7969

0.7895 Pivot Point

0.7797

0.7707

USD/JPY 4-hour: Reached out bullish target – A pullback could be on the horizon

Invest Diva Likes: Short term short positions below 111.68 with targets at 110.95 and 110.08.

If Pair Goes Nuts: Above 111.68 look for further upside towards 112.64 and 114.52.

What’s up on the Forex Dance Floor: The pair jumped up to the previous bullish targets on the BOJ statement. It is already above the upper boundary of the Bollinger band and the RSI is overbought zone.

Supports and Resistances
114.52

112.64

111.68 Pivot Point

110.95

110.08

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