Another day, another rally for risk assets. Although US stocks eased off their earlier highs after the close of Europe, there wasn’t any panic selling of risk assets, jut the usual profit-taking. The dollar meanwhile remained depressed, as the pound and the euro et. al. pushed further higher.
Gold and silver broke out and Bitcoin hit new record highs following a sharp two-day rally.
So, sentiment towards risk assets remained positive, with investors also piling into perceived haven assets such as gold and Japanese yet. The market is continuing to expect easy monetary policy conditions for much of 2021, adding to optimism that the rollout of vaccines will boost the recovery.
For now, central banks will be happy to keep their respective printing machines working overtime, as economic data starts to deteriorate again with the rising virus cases and lockdowns. That’s what the Fed signalled on Wednesday and this was echoes by the Bank of England and the Swiss National Bank today – and no doubt will be the case with the Bank of Japan overnight.
This is why the markets didn’t panic to news of a jump in US jobless claims to 885,000 compared to an estimate of 818,000. If anything, this actually stoked bets that Congressional leaders will be more eager to secure a $900 billion coronavirus deal in the next couple of days.
Meanwhile, the rollout of a Covid vaccine has already started in the UK and mainland Europe would begin rolling out the shot as early as before the end of this year. This, as well as hopes that a Brexit deal is just days away, helped to lift the German DAX towards its all-time highs and the pound reached levels not seen since April 2018 as it broke the 1.36 handle and
closed in on that 1.40 target we mentioned previously.
USD/JPY could be heading towards 100
With the Bank of Japan policy meeting coming up during the Asian hours, the yen will be in focus. The USD/JPY looks like it has finally broken down after several attempts to rise along with the equity markets failed:
Source: ThinkMarkets and TradingView.com
It doesn’t feel like it, but the USD/JPY is actually down for the sixth consecutive month now! Granted, the selling pressure has been very mild compared to other dollar pairs, but with lots of support levels broken down, I think the USD/JPY is heading towards its March low of 101.18. Below that level is the psychologically-important level of 100.00, which is my main downside target. A slightly less dovish BoJ could trigger the move down to that level.