Greenback Wanes as Risk Sentiments Improves

For Thursday, expect the Greenback to weaken as risk appetite advances after the Bank of Japan signifies its intention to join other major central banks in embarking on easing measures and that housing data in the US improved. The Bank of Japan announced yesterday an increase in its Asset Purchase Program from 70 trillion yen to 80 trillion yen, the 10 trillion yen increase will be divided evenly between purchases of treasury bills and JGB’s and the program has been extended an additional six months through the end of 2013. In addition, the bank has removed the 0.1% minimum yield to ensue bondholder participation.
Despite the easing measure made by the Bank of Japan most analysts believe it is not a game changer, as this is the seventh time that the program has been expanded and the increase in the APP over a longer period of time has resulted in a reduction in the pace of monthly purchases. With other major central banks like the ECB and the Fed committed to doing whatever it takes within their mandate to achieve their objective, the Bank of Japan’s move is seen as limited in scope.

Meanwhile, the August housing starts grew by 2.3% to coming from its previous 750k and 733k, while building permits drop by less than expected with a -1.0% monthly drop to 811k. Existing home sales figure jumped by 7.8% on the month to a 4.82 million annual rate which is the highest since May of 2010. Furthermore, Fed Fisher said that inflation expectation is rising and maintained his view that he would not have voted for the QE3. Fisher indicated that there is a sharp rise in inflation expectation and long-term inflationary fears. On the other hand, US equities ended the day in the positive territory as sentiment improved with the Dow Jones Industrial average rising by +0.10% while the S&P 500 climbed by +0.12% to close out the session. Precious metal are currently showing mixed signals with gold marginally higher at +0.02% and silver lower by -0.46%. In addition, oil plunged after weekly report showed a sharp rise in crude oil inventories of +8.53 million which was much more than the +1.0 million barrel expected.

Moreover, US initial unemployment insurance claims declined just 3,000 to a higher than expected 382,000 in the week ending September 15, 2012. This retraced little of an 18,000 jump to an upwardly revised 385,000 level the previous week. Markets has expected a larger retracement given that much of the increase in the previous week was reportedly due to increased claims associated with tropical storm Isaac.

Commentary

For today, the Greenback is now showing weakness in its currency valuation as risk sentiments are now advancing due to the easing measures made by the Bank of Japan, in which its Asset Purchase Program from 70 trillion yen to 80 trillion yen, the 10 trillion yen increase will be divided evenly between purchases of treasury bills and JGB’s and the program has been extended an additional six months through the end of 2013. However, despite this easing measure being conducted by the BoJ some analysts believe that this is not a game changer as its easing measure is quite limited unlike its other counterpart like the ECB and the Fed committed to doing whatever it takes within their mandate to achieve their objective, the Bank of Japan’s move is seen as limited in scope.

Thus, expect the Greenback to move further into the negative territory for the coming session, as negative news coming from its economic data, most particularly risk sentiments rising is causing the dollar to drop further in its price action