Another level Mario

AUD/JPY appears to be the standout performer overnight, ahead of Central Bank Thursday. This follows news that an Investment Committee set up to advise the Japanese Health Department on investments suggested that the Japanese government pension investment fund (GPIF) should refrain from investing in Japanese sovereign debt, suggesting a switch into Japanese equities. The news isn’t ground breaking as the Abe administration has been trying to turn the traditional thinking of the GPIF for some time. Never the less the Nikkei liked it and closed up 1.5% and, more importantly, above the technical 15,000 point. The domestic economy in Australia continues to show solid improvements as robust retail sales and trade balance releases followed the stronger PMI reading earlier in the week.

The market is still on high alert as the situation in Ukraine remains fragile following high level talks in Paris ending without any progress. The BoE and ECB meetings today are likely to be the focus of the FX markets, especially the latter, with the decision very difficult to call. ECB president Mario Draghi emphasised in February that the March meeting was an ‘important one’. To me this suggests that any deviation to the 2016 inflation forecast could be the trigger as the ECB looks forward, discounting the slightly higher inflation reading last week that was clearly distorted due to the French VAT hike. The last ECB projections made in December were calculated with EUR/USD trading at 1.34 so. Could this be the tipping point? There has been talk this week that the ECB will end the sterilisation of SMPs. The BoE meeting has been touted as no change in view or policy although the detail on what they will do with the maturing proceeds from holdings could give us their thinking on the QE debate. If they let these purchases roll off the BoE’s balance then this could be seen as a form of tapering.

EUR/USD

Supports 1.3680-1.3640-1.3580 | Resistance 1.3785-1.3830-1.3895

USD/JPY

Supports 102.30-102.10-101.65 | Resistance 102.85-103.00-103.50

GBP/USD

Supports  1.6640-1.6580-1.6525 | Resistance 1.6770-1.6820-1.6880