Global macro overview for 10/01/2018

The passing night brings two waves of sudden appreciation of the Japanese Yen without a clear justification in the news feed, although the technical levels breaking and the flight of investors who do not know what is happening is doing its job. As yesterday's USD / JPY drop would have been a reaction to reducing the volume of T-bonds from the secondary market bought by the Bank of Japan, today the move has come from nowhere. At the same time, any speculation regarding a faster than anticipated monetary policy tightening in Japan is premature. Inflation is much below the BoJ target (0.6% vs. 2%), and if you look for key elements of the BoJ monetary expansion, then not in the volume of cyclical bond purchase auctions, but in the policy of stabilizing 10Y Treasury yields close to 0%. If BoJ is able to achieve this goal with less expense it will end up positively for all market participants. What's more, in the past, BoJ showed that as soon as yields are to escape over 0.1%, the bank decides to buy unlimited bonds. For now, however, the currency market is following its bizarre path, because inter-market dependencies do not support USD / JPY declines. Yields of 10-year US bonds in the last 24 hours jumped 9 bps to 2.57%; the index of Tokyo Nikkei 225 is at its most since 1991! Such discrepancies in asset relations do not last long, but for the time being, we have to let the market move its own direction.

Let's now take a look at the USD/JPY technical picture at the H4 time frame. The market dropped below the technical support at the level of 112.02 and now is testing another support at the level of 111.45. The key technical support is still at the level of 110.82. Please notice the bullish divergence between the price and the momentum oscillator.


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