Extreme Volatility Post Bank Of Japan
U.S. Dollar Trading (USD) traders really earned their pips yesterday with sometremendous movement in the currency markets. In Asia the BOJ decision to targeta 2% inflation target sent the USD/JPY briefly above Y90 but the market had beenexpecting most of what they delivered and we saw a classic buy the rumour sellthe fact reaction from traders. Banking loss Rumors and heavy stock losses inthe European session saw the USD at day highs but this didn’t last long withthe rumors debunked and US stocks surging to fresh 2013 highs as US House of representativeslook set to increase the US Debt limit. Looking ahead, no US economic data today.
The Euro (EUR) rumors and speculations swept the European marketsyesterday with a 300 pip range on the EUR/JPY. Talk that large German banks were being broken upand that German Bupa President had resigned sent the EUR/USD sharply lower from1.3350 to 1.3270 in a matter of minutes. After Buba denied the rumours we sawmost Euro crosses rebound.
The Sterling (GBP) while the GBP generally tracked the EUR/USD lowerand then back near opening levels during the US session. At the close howeverwe saw some selling on the back of BOE Governor King’s comments that BOE QE isan important tool for helping the UK economy.GBP/JPY has found tentative support at the Y140 level but it is too earlyto call the correction complete. Looking ahead, January MPC minutes forecast at9-0 hold vote. Also November Unemployment Rate forecast at 7.8% unchanged fromthe previously month.
The Japanese Yen (JPY) USD/JPY was the most watch pair in the market yesterday withthe BOJ delivering on the 2% inflation target but this proved a perfect time tobook profit and we saw wild swings in most JPY pairs. A base was found nearY88.50 and the market settled down for the US session. The outlook is mixedwith some believing a short term top is in place and a large correction is duewhilst others believe that the BOJ has successfully created a USD/JPY uptrend.
Australian Dollar (AUD)the AUD/USD wasvery quiet compared the other majors with a small rally towards the topsideresistance near 1.0580. The market is waiting for the CPI data which isimportant for the RBA which is a inflation fighting central bank.UPDATE Q4 Australian CPI at 2.2% vs. 2.4% y/y.
Oil & Gold (XAU) XAU/USD was strong but contained under the key $1700psychological resistance. Recent central bank decisions to increase QE ishelping Gold remain elevated. Oil had no issue trending higher tracking the US stockmarket rally.