Tuesday 19 December 2023
The Bank of Japan this morning shifted the expectations of the hawks onto March as all the recent conjecture about immediate action/fine tuning fading with Ueda making it clear he/they are waiting on the wage negotiations in Spring before any normalisation can be considered. Short-term interest rate target remains at -0.1% with 10-year JGB yield target around 0% and upper reference rate of 1% maintained with the YCC decision voted for unanimously.They did however maintain that the rate of rise in CPI likely to be above 2% in the 2024 fiscal year.
Cue Yen selling across the board with USDJPY posting highs of 144.70 after the press conference having capped initially at 143.80 from a 142.50 start. Cross pair rallies helping to underpin core pairs too but JPY hawks won't be completely disheartened and in essence shouldn't be surprised given current scenarios despite the recent conjecture. The expectation levels were simply too high as I warned here despite being a JPY buyer myself.
Ukraine/Russia war back in the headlines with US and EU financial aid to help support Ukraine drying up for the moment and of additional concern now in the geopolitical sphere is the Houthi terrorist drone and missile attacks on shipping in the Red Sea which will cause disruption in the supply chain of oil and goods with tankers being re-routed. Not going to help keep inflation on the back foot and we're already seeing oil price on the rise. Talking of inflation today brings EU CPI data with UK CPI, PPI and RPI out tomorrow. The ongoing Middle East Israel/Hamas back-story sadly continues meanwhile and casts its own shadow over markets but still not driving prices.
Equities rallied in NY trading again before falling into the close on profit-taking as year-end beckons but generally steady in early European trading with the jury still out on the speed of cuts by FOMC et al. WTI has capped at $74.50 this time as sellers remain poised amid global demand concerns but holding the higher level of $72.00 this morning amid the Red Sea interruption concerns. Gold has capped at $2035 this time again but still underpinned at $2015-20 amid the US rate cut speculation.
GBPUSD: Holding 1.2630 yesterday in the retreat from 1.2670 amid the variable USD sentiment and BOE speculation but finding support now from GBPJPY demand which is helping to temper some renewed EURGBP demand. Some good jobbing opportunities again and I remain poised for further rally sells when momentum fades. EURGBP: Good two-way business again as expected amid the BOE/ECB rate cut speculation with support at 0.8600 this time but capping into 0.8645-50 and falling back to 0.8618 as the jury remains out. GBPJPY: Rallying into 183.50 post-BOJ amid the general JPY supply after holding 180.00. Sellers remain poised but some caution required atm.
EURUSD: Support between 1.0910-20 in the various retreats but capping around 1.0950 this morning amid all the CB conjecture nd cross flows. I remain a rally seller overall. USDJPY: Finding support at 142.30-50 amid some general USD demand but then the sharp rally to 143.80 then 144.70 post-BOJ. I remain a rally seller as preferred side overall at these still elevated (albeit slightly more balanced) levels with 145.00 a potential cap for the moment. BOJ conjecture will continue regardless.
For more detailed analysis across a variety of pairs email mike@mspfx.co.uk
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