Forex Market Update: BOJ Announces Further Easing Measures - A Prelude To The Next Bout Of Intervention?. Moody's Downgrades Hit The EUR

Economic Data Highlights

• NZ Jan. Food Prices out at flat m/m vs. +0.2% prior
• NZ Jan. QV House Prices out at +2.7% y/y vs. +2.4% prior
• AU Jan. NAB Business Conditions out at +2 vs. revised flat prior
• AU Jan. NAB Business Confidence out at +4 vs. +3 prior
• JP BOJ leaves key rates unchanged, increases its asset purchase fund by ¥10 tln, all for JGBs

THEMES TO WATCH - UPCOMING SESSION

• JP Industrial Production (0430)
• JP Capacity Utilization (0430)
• Sweden Unemployment Rate (0700)
• UK DCLG House Prices (0930)
• UK CPI/RPI (0930)
• EU Euro-zone Industrial Production (1000)
• GE ZEW Surveys (1000)
• EU ZEW Surveys (1000)
• US NFIB Small Business Optimism (1230)
• US Import Price Index (1330)
• US Advance Retail Sales (1330)
• US Fed's Plosser to speak (1345)
• US Business Inventories (1500)

Market Comments

The EUR was struggling for traction following the Greek austerity vote as doubts arose that the situation was fully concluded. Cautious comments from Germany's finance minister Schaeuble and EU's Barroso that the Euro-zone's troubles were far from over saw the EUR retracing all of its early gains. And then Moody's stepped into the spotlight.

Downgraded outlooks to a number of EU countries, including Austria, France and the UK and actual downgrades to Spain (2 notches), Italy, Portugal, Slovakia, Slovenia and Malta (all with negative outlooks as well) tipped the EUR lower and the currency traded with a soft feel to it during the Asian session. Asian bourses also traded heavily confirming the broader risk-off sentiment across markets.

Aside from the EUR, Asia focus was on the Bank of Japan meeting with chatter circulating ahead of the meeting of further quantitative easing measures following the weak GDP report yesterday. In the end, the BOJ delivered what the market was looking for with no change in rates but an increase in its asset purchase fund to ¥65 tln from ¥55 tln, with all the additional funds allocated for JGB purchases. Note that recent USDJPY intervention by the MOF has been preceded by additional BOJ easing on the last 4 occasions and USDJPY pushed higher after the announcement and JGBs also firmed. The BOJ kept its view of the economy unchanged with firm domestic demand noted due to on-going rebuilding efforts post-earthquake. BOJ governor Shirakawa will hold an embargoed news conference with comments expected after 0715GMT

In other data, Australian businesses were a touch more confident in January with NAB's business confidence reading edging higher to +4 from +3 as business conditions improved to +2 from a downwardly-revised flat reading in December as the November/December rate cuts filtered through.

Headline numbers showed that UK house prices continued to decline in the 3 months to January as the RICS seasonally-adjusted house price balance remained unchanged at -16%, though surveyors were less pessimistic about the outlook for prices in coming months. The balance for house price expectations over the next 3 months rose 8 points to -15 and reached its highest level in 6 months. The report noted that the London area continued to buck the trend of lower prices elsewhere across the country.

We also heard from Fed's Williams during the session where he noted that the economic recovery was still lackluster and it was vital that the Fed 'keep the monetary policy throttle wide open' to help lower unemployment a bit quicker and bring inflation back to levels consistent with the Fed's mandates.