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BoJ emergency measures sent USDJPY tumbling lower

The BoJ is conducting monetary policy adjustments to try and keep its bond yields near their targeted rate. Last night’s action and the promise of more to come have had the desired effect, though whether this is a new course for the yen we don’t know.

Market Brief

The overnight session was scheduled to be a relatively quiet one, but then the Bank of Japan conducted some emergency monetary policy actions and they offered to buy ¥500 billion in 5-year – 10-year JGBs and ¥50 billion in >25-year JGBs, all from 31 March. They sent the yen higher and the US dollar a lot lower. Resulting in a gap down in the USDJPY. Last night’s purchases amounted to ¥725 billion 5-year – 10-year JGBs and an additional ¥150 billion 10-year - 25-year JGBs. The 10-year benchmark yield is currently lower to 0.222%.

Yesterday’s low on the USDJPY is currently a significant level of resistance and looking left the price action is currently finding support from old balance areas. This means we could come lower to test some virgin levels left behind in the impulsive move. Usually, when we see a big gap in the forex markets, I tend to favor a closing of that gap before any directional move occurs.

The forex heatmap shows the relative strength in the yen, with the AUD and USD showing negative flows at the London open. Looks like the day is set up for a risk-off day ahead of some important US-scheduled news. Today we receive the latest US PCE inflation data, Final GDP (Q4), and ADP numbers. At the futures open there is also the weekly EIA crude numbers to watch for. Once that data is priced in, I am hoping for a smooth directional session as we reprice ahead of Friday's NFP.

The US Nasdaq and S&P500 indices are showing that more than 50% of companies in each index are now trading above their 200 daily moving average. This is a good sign for anyone looking to get long equities.

My only warning would be to look left for untested daily lows. The S&P500 did as expected and swept the double tops and 4600 level. We’re now very likely to start finding levels that profits are taken at.

The US dollar index still appears to be bullish with no new swing low printed. I am going to give the DXY my benefit of the doubt and wait patiently to see if we can get a bounce in this bull flag. If it creates a new swing low, I’ll have to rethink everything US dollar.

The EURUSD is approaching value, as it tests 1.11500 and the 50% retracement of the significant high before the recent lows. 1.1300 is where the most volume has been conducted so there is a chance of continued peace talks the EURUSD travels a lot higher. I am looking left for daily low levels to get short from as the war in Ukraine is not declared over yet.


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