Bank of Japan Stuns Markets With No Change to Yield Curve

This morning investors turned their attention to Asia, and more specifically to Japan. Investors expected the Central Bank of Japan to show signs of a potential interest rate change in the coming months. The market predicted a change to the nation’s Yield Curve Control. The idea of yield curve control is to maintain ultra-low interest rates in order to support the economy.

USD/JPY - BoJ Upsets Market’s Bears

The USD/JPY has been declining since October 2022 after the weakening of the US Dollar. However, the exchange rate gained momentum after the Federal Reserve signaled a possible end to its interest rate policy. In addition to this, a possible change in the BoJ’s monetary policy, which is rare, also influenced the Yen. 

The market previously expected the yield curve control to widen after market pressure continued to mount on the BoJ. The country’s government bonds, especially the 10-year government bonds have experienced a strong rise in bond yields. This indicates the market expects interest rates to rise over the coming months. This has triggered a strong bullish price movement in favor of the Yen. 

Nonetheless, the Central Bank continues to defy the market and has advised the regulator will not amend their YCC.  The unexpected move by the Bank of Japan triggered a change in trend. When we look at the price action we can see the asset broke the previous swing high and shaved almost 2.60% off the exchange rate. 

Even though the price has spiked upward, the technical analysis continues to indicate that the asset may decline further. The USD/JPY has moved into the overbought zone of the Relative Strength Index and continues to remain below longer-term moving averages. Both indicators are signaling a possible downward price movement, which has already formed over the past 3 hours.

USD/JPY 1-Hour Chart on January 18th 

Crude Oil Finds Support From China

The price of crude oil on Tuesday saw a different price movement compared to Monday but has kept to the asset’s medium-term trend. The price has managed to continue forming higher highs and higher lows which keep the bullish trend in place. Crude Oil ended the day on a 2.69% gain. 

However, investors should note that price action is showing signs of Crude Oil finding resistance above $81.50. The price came under pressure at the opening of the US trading session and temporarily declined by 2.40% before correcting back upwards. Currently, all moving averages and the stochastic oscillators are signaling bullish price movement. However, investors are not ignoring the fact that we are currently moving at a price that has repeatedly triggered a lack of demand. 

Crude Oil 15-Minute Chart on January 18th 

In terms of fundamental analysis, the price was recently pressured by the fact that China had poor economic growth. However, the pressure was temporarily lived after China’s top economic official advised that China is on track to rebound in 2023. He also noted that nothing fundamentally has changed in China's economy. The sole cause of the recent declines was related to COVID-19 restrictions which are now being removed. 

The Pound and Euro Continue to Gain against the Dollar 

European investors are happy to see that both the Pound and Euro continue to gain against the US Dollar. Both currencies are currently gaining against the Dollar during this morning’s Asian trading session and the start of the European session. Though traders should note that the Pound is currently witnessing stronger price movement and also significantly gained against the Euro during yesterday’s trading sessions. 

GBP/USD 15-Minute Chart on January 18th 

Multiple fundamental factors including the economic outlook improving and the latest inflation statistics are supporting both currencies. The UK Unemployment Rate remained at 3.7%, earnings continue to rise, and also today’s inflation figures show a positive decline supporting the Pound. UK inflation declined as expected to 10.5% which is the lowest since October but still extremely high to maintain economic stability. Investors are also able to check out our technical analysis video below for the EUR/USD.

The Euro on the other hand is largely being influenced by the lower commodity prices and the cooling of the Energy Crisis. This morning, the German Chancellor advised the market that he is “certain” that Germany will either avoid a recession or the recession will be weak and end quickly. Traders should also note that European Indices such as the DAX and CAC continue to increase.

Summary:

• The US Dollar increases against the Yen after the Bank of Japan refuses to widen its yield curve control. However, the Yen continues to fight back. 
• Crude oil is supported by a positive outlook for the Chinese economy in 2023 if restrictions are not returned. 
• The German Chancellor advised the market that he is “certain” that Germany will either avoid a recession or the recession will be weak and end quickly.
• The UK Unemployment Rate remained at 3.7%, earnings continue to rise, and also today’s inflation figures show a positive decline supporting the Pound