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Hardy: FX week ahead - JPY, EUR & AUD

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It’s been a tough few weeks for Japan – with more bad news this Monday. Moody’s, the bond rating agency, has downgraded the country’s sovereign debt to A1 from AA3. Following the news, the Yen fell to a seven-year low against the Dollar.

Saxo's John Hardy says the decision to downgrade is 'ridiculous' and believes that if USDJPY trades lower it's because of other weaknesses in the market. He also points out that most of Japan's debt is held domestically. He questions what the longer term impact is off the back of the move.

There are four Central bank meetings this week. The first is Tuesday's Reserve Bank of Australia which comes against a backdrop of AUDUSD sliding to new lows in the cycle. Hardy says the Aussie has been affected by weakness in China as well as falling iron ore prices. He says the RBA may well want to cut rates in the future but that won't happen this week. Hardy believes AUD remains 'divergently' weak.

All eyes on Thursday's ECB meeting with the Bank still debating whether or not to expand its asset purchase menu to include sovereign bonds. Hardy believes we won't see much this week but he notes that there is a chance Draghi could surprise the markets.