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BoJ Tremors Shake Euro Below Key 1.2200 Level

By Benjamin Spier
12 July 2012 11:17 GMT

EURUSD has reached new lows in the downtrend that began in May of 2011, dipping below 1.2200 for the first time in two years. However, there was no change in Euro-zone fundamentals responsible for the 0.31% Euro selloff against the US Dollar, but rather a clearer picture painted of a failing global economy with few places tohide.

Before the start of the European session, news had come in overnight reporting unexpected job losses and pay cuts in Australia. Then, the Bank of Japan decided to expand its asset purchase program by 5 trillion yen while cutting its loan facility by the same amount, thereby not expanding its monetary stimulus. The BoJ’s unchanged monetary policy disappointed traders, and by keeping its interest rate at 0.10%, the small Japanese yield is enough to draw more currency investors out of the Euro, whose July interest rate cut leaves it less desirable for those looking for higher yields in exchange for risk.

There was no economic data during the European session that was significant enough to reverse the negative sentiment. The ECB released their monthly bulletin today, which explained that July’s interest rate cut was a result of the materialization of downside risks and steady inflation. Additionally, Euro-zone industrial production unexpectedly grew 0.6% during May, and French annual inflation was reported slightly higher than expected at 2.3%.

The North American session will also be light, traders should watch for the US initial jobless claims (JUL 7) at 12:30 GMT.

EURUSD 15-minute: July 12, 2012

BoJ_Tremors_Shake_Euro_Below_Key_1.2200_Level__body_eurusd_daily_chart.png, BoJ Tremors Shake Euro Below Key 1.2200 Level

--- Written by Benjamin Spier, DailyFX Research

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12 July 2012 11:17 GMT