After a week filled with waves of market-shaking events, this week is a relatively calm one with just a few data coming out.
- Monday- BOJ Policy Rates, Monetary Policy Statement, Press conference
- Wednesday- Canada CPI data, US Crude Oil inventories
- Friday- Core PCE Price Index
FX Pair of the Week: USDJPY
Bank of Japan
The Japanese government may soon work with the Bank of Japan to reassess the existing deflation-fighting policies. This revision could open up the way for a potential change in BOJ’s ultra-loose monetary policy and is tentatively set for next year, following the appointment of a new BOJ governor in April.
The ultra-loose monetary policy that BoJ employed has resulted in a sizable interest differential between the Yen and its peers, causing Yen to depreciate against them significantly in 2022. The pain is especially evident when most central banks around the world are embracing higher interest rates to combat soaring price levels.
What to expect
We are still staying neutral on this news, and remaining cautious as the year-end is approaching. Traders can expect some clarifications from the BoJ conference that is scheduled to take place Tuesday. As for the interest rate decision, the BOJ is expected to keep rates unchanged at -0.1%.
Yen gained slightly during early Asia following the news, but the minor price advance faded shortly after. At the time of writing, it is trading back to where it started this morning.
On a higher timeframe, the gains that Yen made against the US dollar last week after the inflation data were erased by the dollar’s strength following a relatively hawkish FOMC statement. As a result, the previous week’s candle was a Doji formation, signifying indecision among investors.
Our preference remains to the downside, based on the news that was mentioned above. If BoJ decides to tighten up its policy, it could be good news for the Yen and thus more downside for USDJPY. If that should happen, the 134.500 support will be the first obstacle.
Energies: Crude Oil
Two key factors that drive crude oil demand today:
- China’s recovery
- US Energy Department repurchasing crude oil
We are starting to witness a recovery in crude oil demand in China, especially for its Aviation industry where the average jet fuel demand rose by nearly 170,000 barrels per day, or 75% in just two weeks time. Though the general outlook is on the positive side, we are expecting a slow but steady recovery given the increase in covid cases due to the fresh rule liftings.
The U.S. Energy Department announced last Friday that it will start to repurchase crude oil for its Strategic Petroleum Reserve and this is for delivery in February next year.
On the flip side, growing concerns over a potential recession arising from last week’s central bank moves are creating downside pressure.
What is the chart saying?
US oil is now net positive since the Asia session after posting a +4.19% performance last week. If the $77 resistance manages to hold, US crude could continue to fall with respect to the existing bearish market structure (lower highs and lower lows) with the next target being $70, its most recent swing low.
Financial Market Analyst
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