By Naeem Aslam
The Bank of Japan has stolen the thunder with its monetary policy move, and it has done what it does best, which is create a massive knee-jerk reaction in the market.
The bank has proved once again that traders in the forex market should never expect things to go according to a textbook trade and that the central bank will deliver something that is expected of them.
Although, in terms of the ECB and the Fed, we saw very expected actions, the BoJ is a different kind of beast. In Friday’s meeting, it announced it would allow the upper limit on the 10-year yield to move from 0.5% to 1%.
The central bank said it is going to do this by offering to purchase JGBs at 1% every day via its fixed income operations and increasing the current cap by 50 basis points. This has brought wild moves in the JPY, which has sharply higher on Friday.
Back in Europe, we had the French GDP numbers out, which have shown that the economy has performed better than expected.
This was music to many investors’ ears who were listening to the ECB press conference on Thursday and were worried about the threats of a strong recession taking place in Europe. The actual data printed a reading of 0.5%, while the forecast was 0.1%.
Over in the US, traders are focused on the Fed’s favourite economic data, the Core PCE index, which is expected to show further improvement. Remember, the Fed Chairman said in his report that he wants to keep the door open for further measures, and all decisions are very dependent on economic data.
In addition, we will also get to see the US Consumer sentiment data, and any improvement in these economic numbers is likely to boost confidence among traders to support the US equity market, which had a wild week due to earnings and central bank meetings.
In terms of the precious metal, it is once again on track to record losses for the week, and this will be the first week in nearly three weeks that we will see the price closing in negative territory.
The reason that we see some weakness creeping back in the gold price is mainly because of the strong economic data, which is making traders focus more on the riskier assets, and also because it gives the Fed more firepower.
If they want to increase the interest rate, they certainly can without having much fear of a recession taking place.
Naeem Aslam is Chief Investment Officer at Zaye Capital Markets.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Zaye Capital Markets.