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USD trades in a narrow range, BoJ meeting in focus

Vantage Updated Updated Mon, 2023 December 18 11:14

Headlines

* Fed official says too early to declare victory over inflation

* US stocks firmer with the FAANGs leading the way

* ECB speakers warn against premature rate cut bets

* BoJ likely to keep world’s last negative rate in upcoming decision  

FX: USD traded flat and within a very narrow 26 pip range. Mixed Fedspeak didn’t sway the balance either way for rate cuts or a continued hold. Support in the DXY is seen around 102.

EUR outperformed with the major back marginally above 1.09. There was little reaction to the poor German IFO business data. This was probably due to the equally disappointing PMI figures published on Friday. Resistance above is strong just above 1.10.  

GBP fell as markets look towards the midweek inflation report and Friday’s retail sales. The BoE pushed back the most strongly against rate cut bets among the major central banks last week.   

USD/JPY rose marginally above the 200-day SMA at 142.59. Traders are watching the BoJ meeting headlines closely for hints of a pushback against policy tweaks and hike expectations.

AUD edged higher for a fourth straight day above 0.67. The CAD saw small losses against the greenback as it failed to profit from rising crude prices amid heightened Red Sea tensions.

Stocks: US equities were firmer with another fresh cycle high. The S&P 500 added 0.45% to settle at 4,740. The tech-dominated Nasdaq 100 finished 0.64% higher at 16,729. The Dow was flat at 37,306.Notable Morgan Stanley equity bear Mike Wilson turned bullish on the market. The Magnificent Seven led the gains, though Apple was the underperformer amid it halting Apple Watch sales.

Asian futures are mixed. APAC stocks traded mostly lower to kick off this week. Geopolitical headlines centred on North Korea’s firing of a long range missile.

Gold consolidated last Wednesday’s post-Fed bullish move. Treasury yields are still trading around their recent cycle lows. A March 25bp Fed rate cut is currently given around a 75/% chance.

Day Ahead – Bank of Japan Meeting

It’s the turn of the most dovish major central bank to meet and discuss monetary policy. No changes are expected at the BoJ meeting, though speculation was rife just a few weeks ago that Governor Ueda was hinting at a shift into new year. Bank sources tempered these rate hike expectations, but investors are actively betting on the end of NIRP in January.

Ueda’s tone and language will be key. Will he keep the message unchanged or offer clues around hikes and policy changes? Standing pat could see the yen sell off. The recent strong outperformance of Japan’s currency may also have taken some pressure off the bank. Policymakers may wait until the spring wage negotiations and rely on the data until that point to guide policy.

Chart of the Day USD/JPY looks to zone for support

The major spiked lower after the Ueda speculation about an ending to NIRP a few weeks ago. Prices made it back to a minor Fib level around 146 before moving lower again. The Fed meeting sparked another strong sell-off as the 10-year Treasury sunk to cycle lows. A fresh bottom was made at 140.94. But USD/JPY is now trying to consolidate around a major Fib level of this year’s rally (38.2%) at 142.47. The 200-day SMA at 142.59 also resides near here. That means it is a pivotal area for direction.