Just when you think everything is set on a path, a central banker comes out and defends their currency or announces an unlimited amount of cash to move yields to exactly where they want them. The USDJPY has come off its highs but the monetary policy differential is still very wide between the BoJ and Fed, so I am expecting a resumption in the USDJPY trend in the coming days.
The overnight session was a busy time for the forex pairs following the announcement from the People's Bank of China (PBoC) which decided to leave key interest rates unchanged in April, in line with market expectations. The central bank maintained its one-year loan prime rate at 3.70%, as projected, and kept its five-year loan prime at the expected 4.60%.
Around the same time, the Bank of Japan (BoJ) offered to buy an unlimited amount of 5yr-1-yr JGBs at an affixed rate of 0.25%, which sent the yields directly to that figure and sent the yen surging higher. This undone 50% of the USDJPY move from the previous day but wasn’t enough to go much lower.
There is still a massive disparity between the US yields and Japan’s benchmark yield, so I am looking for a continuation of the bullish USDJPY in the near future.
The added strength in the yen is also being met with more weakness in the US dollar index. The DXY has closed below an intraday swing and is currently moving lower looking for support. The origination of the surgeon on the 14th of April would be a great target as it looks like the US dollar is going to first try and close the gap on the opening of the 18th and then cut through that volume void between 99.65 to 100.25.
The EURUSD makes up a significant portion of the DXY and today the euro is moving higher on economic data from Europe. Germany's national statistics office Destatis announced this morning that producer prices rose by 30.9% in March compared with a year earlier. During February, producer prices rose 25.9%. The ECB will have to address the persistent rising inflationary pressures and traders are pushing the euro higher in anticipation this morning.
Later this morning we hear from ECB members Rehn and Nagel so there could be a pause in the move after midday.
In the US session, the EIA Weekly Crude stocks are also scheduled for a release and traders will be looking for continued signs of demand destruction.
Brent has consolidated under the 200-period moving average on the M30 chart having broken through the market structure at the $100 level. I am looking for a continuation back to the $103 and possibly to sweep below $100 per barrel.
The forex heatmap is indicating that the markets are moving into a more risk-on mode, with commodity pairs doing well on the back of a weakening greenback. The yen and Swiss franc are currently mixed, and the euro is clearly relatively strong today.