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Expecting A Hold, But Secretly Wanting A Cut To 0.25%

Written by A Forex View From Afar on Friday, October 31, 2008

After the Federal Reserve cut interest rates by 50 basis points yesterday, markets have shifted their focus to the Bank of Japan, which is expected to hold firm the overnight lending rate, but there is rising speculation they will cut 25 basis points.

Speculation is increasing for a cut although just one week ago the chances for such a movement were minimal. If the bank does cut, as is speculated, the overnight rate will fall to 25 basis points, and remain the lowest among the developed countries.

The rate cut might see more support from the government rather than from the central bank. The Japanese economy may face a prolonged slowdown, as exports slide due to international tensions and the stronger yen. In the past, BoJ Governor, Masaaki Shirakawa, declared that the current rates are dangerously low.

However, if the central bank does not cut, the Japanese Yen may continue to strengthen. Looking at how the markets have reacted to risk lately, in the case of a hold decision from the bank, it would not be out of the question for the yen to test the 94.00 and 90.00 areas again.

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Fundies and Trading
There is a constant question from some traders as to why anybody would ever need to consider the ‘F’ word when trading. Fundamentals: what is so damaging at looking at both Technical charts and having a Fundamental filter to gauge how many Lots to put on? Why is it that accepting that Technicals give us price points to trade, but Fundamentals determine the direction that we travel is so difficult for some traders to accept? Without a Fundamental Filter very few pure Technical traders would have seen this Dollar move coming today.

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