Key points:

  • BoJ QE surprise translates into lasting consequences for markets;
  • Dollar finishes short-term bullish correction;
  • Sterling drives away from Brexit sentiments, the focus on production numbers
  • Oil market loses touch with fundamentals?

An unexpected step from the BoJ

The US Dollar yields in the battle against Japanese Yen and the mood for USD/JPY may finally change to bearish after the Japanese Central Bank has submitted a long-term signal to buy the Yen, suddenly reducing the volume of bond purchases by 5%.

This step strongly contrasts with the previous rhetoric of the regulator. The thing is that the Bank of Japan up to the last calmly insisted on extending the stimulus, while other banks went on to tighten. Now, there is a hope for “synchronization” of the world’s Central banks, which means a global turn to selloff on the debt markets. This will boost yields across the globe and could put breaks in the stock market if at all does not become a signal for a decline.

USD/JPY fell to 111.765, the lowest since early December. The Japanese Yen has been waiting for a correction for a long time, as the yield differential between leading economies contributed to capital outflows from Japan, i.е. increased bearish pressure on the Yen. Discounting the speculative reaction, USD/JPY selloff convinces in the fact that investors have been waiting for aggressive actions by the Japanese Central Bank, and that the tightening of the FED’s policy has exhausted itself as a bullish catalyst for the Dollar.

Back in Selloff

The Dollar completed bullish correction, which I mentioned about in my previous note, and again went into the defence.  The level of 91.00 is in turn, which became a global level of support in September last year. The US economy requires a weak dollar as a remedy for weak inflation and investors are likely to take this request into account. Tomorrow’s ECB protocol will probably do a favour for Euro, given that the ECB hawks increasingly drop bullish hints, giving the impression that this is the general position of the regulator. However, the “doves” Mario Draghi and chief economist Pratt have so far abstained from commenting.

Pound and production data

Investors bought GBP/USD from the level of 1.35 on strong production data and construction. The rise in production became possible due to the growth of orders from abroad, in particular, the Eurozone. This can be interpreted as another argument in favour of soft Brexit, pointing to the high dependence of the UK economy on the Eurozone. Although one fact is that 44% of UK exports consumed in the EU speaks for itself.

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