BoJ Holds with Equities on the Move, While the USD Struggles On

Earlier in the Day:

With no material stats released through the Asian session this morning, the market focus was on the BoJ monetary policy decision.

The BoJ held rates unchanged at minus 0.1%, with 10-year government bond yields to also be maintained at around 0%, which was in line with market expectations.

While policy was left unchanged, the BoJ was somewhat more optimistic on its outlook on inflation, with the BoJ expecting inflation to continue to move towards the 2% target, supported by improving economic conditions.

The Yen moved from ¥110.899 to ¥110.674 against the Dollar, finding support from the optimistic inflationary outlook. Despite the gains in the Yen, the vote of 8:1 in favour of standing firm continues to suggest that there is no likely move on the horizon.

At the time of writing, the Yen was up 0.12% to ¥110.79 against the Dollar, easing back from the post announcement intraday high, with the BoJ press conference yet to come.

Elsewhere, the Aussie Dollar and the Kiwi Dollar were down, the Aussie Dollar down 0.36% to $0.7988, while the Kiwi Dollar was down just 0.03% to $0.7326.

The story of the session was in the equity markets however, with the overnight rally in the U.S driving risk appetite through the session. All the majors were in positive territory, led by the Nikkei, which was up 1.29%, with the Hang Seng, CSI300 and ASX200 all making solid ground at the time of writing.

Earnings season is certainly driving demand and, with the BoJ and the RBA in a holding patterns, there’s little to throw the markets into a spin for now, with economic data continuing to impress.

The Day Ahead:

After a quiet Monday that saw the EUR move further ahead against the Dollar, economic data out of the Eurozone this morning includes January economic sentiment figures out of Germany and the Eurozone.

In spite of Chancellor Merkel’s troubles prior to the SDP vote last weekend that supported coalition talks to continue, the German economy has continued to perform, with sentiment seemingly unwavering, supported by the positive economic indicators going into the New Year.

Forecasts are EUR positive, though by how much the EUR moves will likely be Dollar dependent, with appetite for the EUR likely to be tested ahead of Thursday’s ECB press conference, where Draghi may well deliver a dovish note to jawbone the EUR back towards $1.20 levels.

At the time of writing, the EUR was down 0.03% to $1.2258, with today’s data likely to have a short-term impact ahead of tomorrow’s private sector PMI figures and, more importantly, Thursday’s ECB monetary policy decision and press conference.

For the Pound, the lack of macroeconomic data did little to halt the recent run, with the Pound surging towards $1.4 levels on Monday.

For the day ahead, stats are limited to January’s CBI Industrial Trend Orders, which are projected to be GBP negative, though we will expect the numbers to have a relatively muted impact, as Brexit continues to provide direction.

There’s been very little negative chatter on trade talks of late, which has contributed to the recent rally along with the softer Dollar. With hopes of a favourable transition period, things have begun to favour a softer Brexit, though things can change quite rapidly.

At the time of writing, the Pound was down 0.04% to $1.3982, with Brexit chatter the key driver, today’s Industrial Trend Orders unlikely to have a sustained impact after release.

Across the Pond, it’s another quiet day on the data front, with no material stats leaving the Redbook for the markets to consider.

For the Dollar bulls, an immediate sell-off was averted overnight, with the Senate voting for the extension through to 8^th February, but the reality remains that the short-term extensions are not addressing the main issue, with the markets having to now face another round of votes in a few weeks.

At the time of writing, the Dollar Spot Index was down 0.03% at 90.387%, following Monday’s slide, with Capitol Hill chatter likely to remain a key driver ahead of the 4^th quarter GDP numbers later in the week.