The Japanese yen was performing rather predictably on Monday. During the first trading hours the USD/JPY currency pair was testing the 114 level. The current dynamics remain unchanged. The next short-term marker in this currency pair is located at the 114.4 area.
A surge was ensured by the report that Prime Minister Shinzo Abe's party secured a strong mandate in Japan's election that took place last weekend. The prime minister strengthened his position and most probably will stay in power until at least 2021. Meanwhile, it means that mild monetary policy chosen by the Bank of Japan to spur the economy and inflation will be continued. The inflation target is 2%. According to the latest report, prices in August rose by breathtaking 0.7%. Even though it is the highest rate since March 2015, it is unlikely Japan can reach the target rate in the nearest months or perhaps even years.
In the meantime, the turning point for the European single currency this week is going to be an ECB's meeting. Other reports may fall into the shade. The main intrigue of the upcoming meeting is an announcement of a road map of cutting the stimulus program, namely, when, how and in what volume this is going to happen. According to the median estimates, the central bank will cut its monthly purchases by half (down to 30 billion euros), but it will extend its QE program by nine months. Thus, the bank is eager to cut the volume of the liquidity being injected but at the same time not to scare off the market by tightening the program too rapidly. This kind of scenario has already been factored in prices. Therefore, if this plan is approved, then the reaction may be minimal. And yet other details, for example, about whether a rate hike is likely in the foreseeable future, may strengthen the dynamics of trading.
The EUR/USD currency pair has been trading today near a local low at 1.173. This low being tested is not unlikely, however in general trading has been within the range. Up until the ECB's meeting at least, prices will remain within the 1.187-1.167 area.
Oil prices have been decreasing today, with no significant reasons for that though, except for the strengthening of the US dollar. It is rather the opposite as Baker Hughes reported on Friday that the oil rig count in the USA fell by 7 to 736 last week. Among other factors that support oil prices we can mention active demand for oil in Asia, specifically in China and India. China's oil imports hit a record high over January to September and rose by 12% year-on-year.
From a technical perspective, Brent oil keeps consolidating near a local low at 58.87.
For the ruble, this week's key event is expected to be a meeting by the Central Bank of Russia. A rate decision will be made on Friday. And a rate cut by within 0.5%, from the current 8.50% per year, is expected. However, taking into account the comment by Ksenia Yudaeva, it can be assumed that this time the rate will be cut by 0.25%. Moreover, the dynamics will remain similar unless inflation exceeds the 4% target set by the regulator. Currently the inflation rate is about 3%.
In the meantime, the ruble/dollar pair remains in a narrow range, which is understandable. On one hand, oil prices remain unchanged, on the other hand, there is a central bank's meeting scheduled soon.
Ivan Kapustyanskiy, equity analyst at Forex Optimum