BOJ hike rates

Wednesday 31 July 2024

This morning the Bank of Japan hiked rates to 0.25% as widely expected given that it was leaked through various Japanese media outlets yesterday which drove USDJPY down from 154.60 to 153.00. We've seen further two-way volatility around the decision and now breaking down through 151.00 as I type. BOJ Governor Ueda's press conference has been more hawkish than cautious, and not ruling out further hikes albeit making clear that 0.5% is not a target but says he can see JPY appreciation if US cut rates.

We do indeed get the latest US Federal Reserve decision this evening at 18.00 GMT but no cut expected today. Markets pricing in two cuts before year-end with September widely expected to herald the first 25bps. Some decent size option contracts rolling off tomorrow to keep in mind if we do get extended moves in the FOMC aftermath.

Month-end rebalancing models have been indicating small USD-buying signals with a moderate signal on USDJPY as I've been reporting so we'll keep an eye on today's 4pm London fix for any last minute orders to be filled.Today's data slate brings German ZEW, EZ CPI with US ADP plus Canadian GDP.

US and European equity markets have once again recovered off yesterday's retreat lows with dip buyers prevailing again but with rally sellers/proft takers still poised. WTI capped at $76.30-50 but support coming in at $74.30-50 a few times helped by rising tensions in the Middle East before capping around $76.00. Gold has found some dip demand into $2400 but with rallies capped by more profit-taking between $2420-30. Dip demand should remain but profit-takers/sellers still poised.

GBPUSD: Holding 1.2820 in yesterday's USD demand and cross-led supply but capping above 1.2850 and in retreat again as GBPJPY supply dominates. Potential BOE rate cut tomorrow in the mix. EURGBP: Holding 0.8410 again amid some EUR supply but capping at 0.8430 with those large options at 0.8450 yesterday casting a shadow too. More at 0.8420 today and tomorrow. ECB/BOE rate cut conjecture contines too. GBPJPY: Yet another rollercoaster ride unsurprisngly amid the USDJPY moves and variable risk tones and now a rapid fall below 193.00 from 196.00 as USDJPY falls further to test 150.00 as I type.

EURUSD: Another hold of decent technical support around 1.0800 yesterday but equally failing above  1.0830 again we continue to range tightly amid the variable cross and USD flows. USDJPY: Well, finally the long awaited tumble has happened quite apart from the recent volatility and price capping and I hope my guidance has helped make/save a few pips. I prefer playing the rally-sell side still in the wake of BOJ today but after the extended retreat some caution required as ever. Entry level/patience is key and we wait to see just how big 150.00 proves to be.

Traders - For more detailed analysis across a larger number of FX pairs including market order flows and options expiries email mike@mspfx.co.uk