Growth Woes on Dovish Cues from BOJ & BOC Influence

Karthik Subramanian

Karthik Subramanian has been a professional trader and fund manager over the last 18 years. He is basically a software developer who made the transition to financial domain around 18 years back as the attractiveness of the financial markets proved too much for him. He lives in Chennai in India along with his wife and son. He began his career as a software developer in 1999 and then gradually moved into the financial industry as he began trading stocks in his pastime. He then moved into the financial markets full time and then shifted his focus to the FX markets due to the liquid nature of these markets. Since then, he has been trading FX diligently and his favourite pair are the EURUSD and EURJPY. Over the last couple of years, he has found blockchain to be of high interest and considering his background in software and finance, he has since assembled a team of highly talented developers who have since worked on a variety of projects like crypto exchanges and blockchain architecturing. Now, he balances his time between trading and commenting on both the FX and crypto markets. He has worked with many publications including FX Street and Finance Magnates, which has helped him gain experience and also recognition across the industry. He loves to write and this passion has helped him to reach out across the FX and crypto industry. Right now, he works on his pet projects in the FX and crypto industry and spends his time writing and managing his blockchain team and helping it to reach higher.

BOJ

Growth Woes on Dovish Cues from BOJ & BOC Influence Dovish Price Action

April 26, 2019

BOJDovish cues from major central banks, disappointing macro data updates from key economies hurt investor sentiment resulting in bearish price action in global market.

Summary: Both Equities and Forex assets are seeing dovish price action in global market today. Dovish cues from Bank of Canada & Bank of Japan’s outlook statements, declining crude oil price action and disappointing macro data updates from major European and Asian markets served as factor hurting investor risk appetite in the broad market. The outlook of Bank of Canada took a 180 degree turn towards dovish side as the central bank abandoned its hawkish stance towards future rate hikes and announced downgrade of growth forecast for Canada for the year ahead citing global economic slowdown and uncertainties surrounding crude oil market as the reason. Similarly, Bank of Japan also gave dovish signs in their economic outlook and forward guidance update citing concerns of global economic slowdown. These factors increased investor concern surrounding global growth which is the main driving force behind today’s bearish price rally. Meanwhile, US Dollar gained a strong bullish boost which has capped gains in major forex pairs resulting in range bound price action in forex market.

Precious Metals: Precious metals are seeing divided price action in global market today. While strong dollar pressures Silver into trading in red, concerns of global economic slowdown has helped gold trade positive. Despite strong dollar capping gold’s gains, the yellow metal has held firm in positive territory across both Asian and European market hours.

Crude Oil: Post slight decline in previous session, both major crude oil benchmarks are trading positive in global market today. Brent crude oil price rose above $75 handle for first time in nearly six months while WTI crude oil price is back above $66 handle where price action has remained steady across European market hours.

USD/JPY: The pair has been on path of steady decline since late yesterday’s trading session. Risk averse investor sentiment which dominated global market provides strong fundamental support to Japanese Yen which fueled the pair’s decline. Further, dovish outlook from Bank of Japan’s interest rate decision update today also supported demand for Yen resulting in downward price action holding steady across today’s trading session.

Starbucks sbuxOn The Lookout: Brexit talks are back in focus once again as headlines indicate that cross party talks relating to Brexit deal seems to be on verge of fallout. Despite, UK being granted yet another deadline extension there seems to be a clear lack of motivation from lawmakers into working out a deal for moving forward. Disappointing macro data hinting at Euro area economic growth slowing down and increasing hard Brexit possibilities weigh down investor sentiment in European markets. Major bond yields are seeing sharp declines adding strength and support to dovish cues in market. This suggests increased possibility of dovish price action in European market in immediate and near future trading session. Most of major US corporate earnings released yesterday saw disappointing results causing mixed activity in US Wall Street. US earnings reports expected today are from T-Mobile US, Starbucks, VeriSign and Ford Motors. On the release front, Investors await US Durable goods orders data, Initial jobless Claims data and core durable goods orders data ahead of Wall Street opening and US Treasury department report and Tokyo CPI in Pacific-Asian market hours.

Trading Perspective: Influence from earnings updates is likely to dominate price action in US Wall Street while Forex market is likely to see major pairs trade range bound with bearish bias having breached critical support levels earlier this week.

EUR/USD: The pair yesterday breached yearly lows as predicted and continued its steady downward price action. The pair continues to scale new 2019 lows with price near 22 month lows well below mid-1.11 handle. Dovish European macro data updates continue to fuel Euro’s declines while USD’s strength in broad market also puts pressure on Euro bulls. Investors await macro data updates for short term directional cues ahead of tomorrow’s US GDP update.

GBP/USD: The pair is on its fourth consecutive session of bearish decline as headlines hint at fallout in cross party Brexit talks which suggests key decisions relating to Brexit could be delayed further. Meanwhile, growing strength of USD also adds pressure to British Pound pushing the pair towards 10-week lows. Investors await further headlines on Brexit talks for directional cues ahead of which macro data updates provide short term profit opportunities.

USD/CAD: The pair holds steady above 1.35 handle but has declined from weekly highs as crude oil price rebound in the global market. Despite USD remaining strong in the global market, disappointing earnings updates during yesterday’s US market hours and US government bond yields seeing dovish activity continue to limit further upside price action. Ahead of tomorrow’s US GDP update the pair is likely to continue trade rangebound within this week’s price range limit.

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