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Denis Sergienko • 2022-12-20

Bank of Japan shocks markets

Bank of Japan shocks markets

Global markets witnessed a return of the risk aversion as the Bank of Japan surprised traders with a hawkish move, despite holding the monetary policy mostly unchanged. Adding strength to the risk-off mood are economic fears surrounding China and the globe, as well as chatters that inflation woes will stay on the table for longer.

USDJPY is the biggest mover as it slumped over 3.0% to refresh a four-month low. Even so, the US Dollar struggles to push back the bears amid less hawkish guidance from the Fed. That said, AUDUSD played its role as a risk barometer even as RBA Minutes appear slightly positive.

Equities in the Asia-Pacific and the West remain in the red while prices of crude oil dropped. However, the gold price seems to cheer softer USD and its traditional risk safety allure.

It’s worth observing that Cryptocurrencies print gains despite the broad pessimism.

Following are the latest moves of the key assets:

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  • Brent oil snaps two-day rebound to drop below $80.00, down 0.60% intraday at the latest.
  • Gold stays mildly bid around $1,795 after a downbeat Monday.
  • USD Index remains pressured for the second consecutive day as it losses 0.50% intraday near 104.15 by the press time.
  • Wall Street closed in the red and drowned stocks in the Asia-Pacific region, as well as in Europe and the UK.
  • BTCUSD and ETHUSD surprisingly print gains around $16,800 and $1,200 in that order.

BOJ rules

Despite holding the benchmark rate and bond targeting intact, the BOJ infused market volatility by increasing the boundaries of the Yield Curve Control (YCC) policy. The move drowned bond prices due to Japan’s ruling status in Treasury bond markets.

The resulting risk-aversion joined World Bank’s downbeat economic forecasts for China and fears of higher rates elsewhere to weigh on the sentiment. However, the USD Index stayed negative for the second consecutive day, down half a percent we write.

USDJPY marked the biggest daily fall in five weeks while AUDUSD couldn’t cheer hawkish RBA Minutes due to its risk barometer status.

Gold tried to cheer the softer US Dollar but couldn’t post more than a small gain whereas Brent oil declines nearly 1.0% at the latest.

Cryptocurrencies should have ideally slumped but are not as the BTCUSD and ETHUSD lick their wounds amid hopes of holiday buying and an absence of major negatives from the regulatory front.

  • Strong buy: GBPUSD
  • Strong sell: ETHUSD, USDJPY
  • Buy: USD Index, USDCAD, Nasdaq, EURUSD
  • Sell: DAX, FTSE 100, gold, BTCUSD, AUDUSD

Sentiment is the key

Moving on, post-BOJ reassessment and some second-tier data from Canada and the US, as well as from Germany, may entertain intraday traders. However, the market’s risk profile will be the key to watching for immediate directions. Should the bond bears keep the reins, the US Dollar is likely to reverse the latest losses. However, Fedspeak and US housing data can play their roles.

May the trading luck be with you!