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  • Mike Paterson

Bank of Japan lights a fire under markets

Thursday 28 April 2022

Yesterday saw some excellent two-way business again with good opportunity whatever your bias but overnight the BOJ sent USDJPY rapidly higher from 128.40 to 130.70 as I type after yesterday's hold of 127.50 as they increased commitment to Yield Curve Control by adding 10-year fixed rate buying operations for every business day, sending JGB futures higher, JGB curve bull flatter and swaption vols diving as those betting on BoJ capitulation run for cover.

We had general USD demand initially across the board helped by month-end flows that I've been warning about all week (and witnessed again into yesterday's 4pm London fix as I highlighted too here) but the relentless JPY supply has forced cross pairs higher and that's put a base under core pairs with rallies currently in place to keep pace. USD demand is sending the Yuan notably lower too. Conjecture will increase as to how far the BOJ is allowing the Yen to weaken but this latest move can hardly have been a surprise to them given the very nature of their monetary policy. Their focus on YCC brings JPY weakness. End off unless they physically intervene..........

The Swedish Risksbank raised rates from 0.0% to 0.25% in a surprise move that leaves the ECB with more to consider and may well force/encourage them to act. The Risksbank also decided to reduce the pace of QE during H2 and suggested the repo rate will be raised gradually moving forward. Cue a sharp rise in SEK.

Equity markets are making their minds up but off their lows again this morning as are Gold and oil but sellers poised amid the uncertainty. For new and older subscribers alike I repeat my view that it's still a case of not over-analysing but keeping your focus on price action in core and cross-pairs.Continue to identify ranges and what levels present value for money. Algos will continue to knee-jerk price action on the variable headlines. Discipline is key as ever.

GBPUSD: Finally broke down through 1.2500 earlier in Asia but then a rally to test 1.2575-80 again (as we saw a few times yesterday) amid the GBPJPY demand. Pips banked in the latest retreat and re-sells in the rally on a simple rinse/repeat basis while we continue to range down here. I remain a rally seller overall while keeping an eye on EURGBP and GBPJPY as always.

EURGBP: A break lower through 0.8420 this time but holding above the old support line of 0.8380 as the two-way business continue with sellers now at 0.8420-25. Expecting dip demand still but equally rally sellers poised as the uncertainty continues. GBPJPY: Support at 160.00 and 161.00 thereafter then up, up and away post-BOJ and now testing 164.00. Heady heights compared to recent lows of 159.50 but equally nowhere yet near the 168.00 highs we saw last week. A coin flip here but should see some further dip demand overall with BOJ seemingly happy/obliged to see weaker Yen.

EURUSD: Finally a break of 1.0500 earlier this morning as USD surged but the EURJPY demand post-BOJ helping to lift and test 1.0550-60.USDJPY: So much for the two-way action post-BOJ! Yesterday was good again but up and away from 128.40 to 130.70 really put the cat among the pigeons. Big decision now is whether we have gone far enough for the moment. EURJPY: Support at 135.00 held again and now the 136.50 cap presents a fresh base. From Looking soggy to expecting dip demand now in a matter of hours....USDCHF: A further rally amid firmer USD tones and with EURUSD making its mind up still amid all the cross flows and now testing 0.9700-20 after a good hold of the old resistance of 0.9660. SNB definitely getting a helping hand but EURCHF rally sellers still poised.EURCHF: A further retreat into 1.0180 amid the earlier EURUSD selling in Asia but bouncing to 1.0220 with the SNB lurking in the dips but rally sellers poised still.

AUDUSD: Rally failure at 0.7200 then 0.7150 but holding 0.7075 in the latest retreat helped by some AUDJPY demand and pips banked along the way.I prefer rally-sell side still. GBPAUD capping into 1.7675 this time as AUDUSD bounce outstrips that of GBPUSD. NZDUSD holding 0.6470 in latest retreat but equally capping at 0.6550 now. Those GBPNZD buyers lurking 1.9030-50 have prevailed but sellers above 1.9300 providing a cap on the latest merrY-gO-round moves. USDCAD: Now capping arounbd 1.2850 with USD demand versus CADJPY demand playing out again. Two-way business still expected amid all the uncertainty.

Let's continue to be careful out there in all things. Staying safe must be our main priority still.

Interbank rates: 08.32 BST

GBPUSD 1.2557

EURUSD 1.0547

EURGBP 0.8400

GBPEUR 1.1900

GBPJPY 1630.67

GBPCAD 1.6064

GBPCHF 1.2174

GBPZAR 19.8860

GBPHKD 9.7765

USDJPY 130.17

EURJPY 137.44

EURCHF 1.0220

EURHKD 8.2155

AUDUSD 0.7161

USDCAD 1.2800

USDCHF 0.9688

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