Global macro overview for 30/07/2018

The global investors are now focusing their attention on the Bank of Japan meeting, which will be finalized tonight. BoJ might keep monetary policy parameters unchanged, although in recent days there has been a discussion that important modifications are being prepared. One of the ideas is to reduce investment in ETFs based on the Nikkei225 index, as the central bank's activity began to have an exaggerated impact on the companies belonging to the index. In return, BoJ is expected to increase purchases within the broader Topix index, but the program's volume is to remain the same. Such a "correction" barely changes the perception of the policy and should be neutral for the currency market. However, speculations also concern the change of the target for the Treasury bonds purchase strategy. Currently, BoJ is committed to maintaining the profitability of 10-year bonds close to 0 percent. (in practice, it is 0.1 percent), but press leakages have recently been talking about shifting the target to 5-year notes. However, we believe that such a change will be detrimental to achieving the inflation target of 2% in the medium term. The target, which is moving away, because the BoJ will probably lower tomorrow's inflation forecasts (according to press reports - up to 1.5 percent). Policy adjustments to changing market conditions (pressure to increase profitability abroad, an exhausting pool of available assets) in the future await the BoJ (even in the autumn), but grabbing for surprises during the holiday liquidity fall would be irresponsible.

Let's now take a look at the GBP/JPY technical picture at the H4 time frame. From the GBP / JPY perspective, unexpected policy adjustments may temporarily strengthen the yen, but the move will be reversed quickly when the market understands that this is only a temporary solution without successive plans, and the policy remains ultra-ease. The last upswing on this pair was almost completely retraced as the level of 61% Fibo at the level of 145.86 was violated. The pair has found a temporary low at the level of 145.24, just above the 76% Fibo retracement. The key level to the upside is seen at 146.51 and unless this level of violated the market might be drifting aimlessly until BoJ decision.


The material has been provided by InstaForex Company -