Last week, we saw USD/JPY on a flat for almost 24 hours. This morning, it is EUR/USD that displays similar symptom. The many fundamental releases this week is supposed to boost volatility, but uncertainty caused by authorities' vague intents has made the market wary.

Last week, we saw USD/JPY on a flat for almost 24 hours. This morning, it is EUR/USD that displays similar symptom. The many fundamental releases this week is supposed to boost volatility, but uncertainty caused by authorities' vague intents has made the market wary.
uncertainty


Critical Juncture, Japan Stay Optimistic

The bane of Yen is the planned 3% tax hike that was to be done today, or at least within the month. The first tax hike in Japan since 1997, it is predicted to strongly influence the economy and the currency. The problem is, the said influence is virtually hard to guess.

At fist sight, recent Japanese economic report doesn't support any hike on taxation. The economy shot up last year, but it has lost steam by the start of 2014. February industrial output fell in fastest pace on 8 months. If the tax is increased today, it surely will pressure the economy. Or is it? Tax will push prices higher, and may result in lower consumption. If it happens, companies will lose their recent output gains and disturb inflation target. As the result of these worries, yen surrendered against greenback.

However, Japanese apparently aren't as worried. Tankan index that shows manufacturing sentiment rose from 16 to 17, the highest record in seven year. This morning, Governor of BoJ, Haruhiko Kuroda, said that Japan will escape deflation, no matter what problem appear. A report from Ministry of Economy, Trade, and Industry, also insisted on their assessment that industry output has risen, and called the fall of February data as an exception due to adverse weather.

The confidence could be caused by two possibilities. First, Japanese fully believe that the economy will be all right although tax hike go on as planned. Or, BoJ has prepared a rescue package in case the hike depresses Japanese economy.


Flat EUR/USD Ahead of ECB Rate Decision On Thursday

Other region that experiences critical moments is the Eurozone. Yesterday Eurozone CPI fell from 0.7% to 0.5%. It means, inflation in the region gradually decreased throughout the first quarter of 2014. If it goes on, we could hope for a real deflation by the end of the year.
eurozoneOnce more, ECB is under pressures to throw in stimulus. So far, ECB have refused to do anything to contain the falling inflation. Governor of ECB, Mario Draghi, persisted that they see no deflation and will take action when needed. Will he say so again this time?

ECB rate meeting next Thursday is hoped to bring clarity on the matter and talk about all the available alternatives: let the status quo go on indefinitely, cutting interest rates, or launching stimulus package. Euro outlook ahead of the meeting is not so good, but there are several dataset that ought to be obeserved, they are German unemployment data that's going to be released today, Eurozone GDP on Wednesday, and retail sales a few hours before ECB announcement.  

Meanwhile, US dynamics will continue play an important role in majors, particularly EUR/USD and USD/JPY. Fortunately for Euro and Yen, The Fed Governor's statement yesterday triggered uncertainty and undermine market confidence on US Dollar. Nevertheless, fundamentally, the US has relatively stronger economy than Eurozone and Japan.

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