BOJ Holds Yen Strengthens

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Market Drivers July 30, 2019
Cable continues to drift lower
BOJ holds
Nikkei 0.43% Dax 1.13%
UST 10Y 2.05%
Oil $57/bbl
Gold $1428/oz.

Europe and Asia:
EUR Business Climate -0.12 vs. 0.1

North America:
USD Personal Income/Spending 8:30
USD PCE 8:30

The yen strengthened in Asia session trade today while cable continued to drift lower in generally quiet FX trade as markets awaited the FOMC decision on Wednesday.

USDJPY dipped towards 108.50 after BOJ left its monetary policy unchanged and refused to commit to any additional measures at this time. The reaction was relatively muted, but many market players now expect the yen to strengthen over the next several months if the Fed moves to an easing stance rather than one and done posture.

That’s why tomorrow FOMC meeting looms large in the market’s mind as offers not only the prospect of Fed’s policy guidance but the response from the various G-7 central banks to any change of stance by Mr. Powell and company.

For now, the price action was quiet with only cable seeing further weakness as the pair made fresh multi-year lows at 1.2118 before finally finding buyers and rebounding to 1.2190 by mid-morning London dealing. In the never-ending game of Brexit chicken, EU appears to have upped the ante. According to the Sun, “European leaders can see that it is clear Boris Johnson is trying to build pressure by running down the clock and try to use the European Council meeting in October to demand major concessions on Brexit.

Hence, they are instead planning to turn the October meeting into one preparing for a no-deal Brexit by 31 October instead – by discussing contingency measures and communiques bracing businesses and financial markets ahead of deadline day.”

As we noted yesterday, PM Johnson could misplay his hand by being so aggressive in negotiations, but the baseline scenario remains that despite all the saber-rattling the two sides will begin to negotiate before the deadline especially if UK business turns markedly worse putting economic pressure on PM.

In US meantime, the eco calendar brings Personal Income/Personal Spending data which could be of interest to the market if it shows an upward surprise. Any strength in consumer spending would play to the one-and-done scenario from the Fed. However, any weakness could really rock the market on the assumption that US consumer strength is waning and would require sustained easing by the Fed to stabilize. A big miss in those numbers could send USDJPY to 108.00 before the end of the day.

Boris Schlossberg
Managing Director

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