Daily market commentary: The Japanese yen crosses the 145 level in relation to the dollar, the Bank of Japan intervenes

Forex

As the European trading session got underway, the Japanese yen is holding around the 142 level in relation to the US dollar. The yen had been on a losing streak against the dollar since the Fed started tightening monetary policy, with the correlation worsening as Japan became the last major economy to keep interest rates in negative territory. Eventually, what many had been expecting happened; yesterday the Bank of Japan intervened in the markets, using its own foreign currency reserves to buy yen in an attempt avoid further losses. Japan has outsourced a significant part of its industrial production to third countries and a weak yen is no longer an advantage, so when the currency crossed the 145 level in relation to the dollar, authorities in Tokyo decided that it was time to intervene in order to avoid further depreciation. The move worked, but the question is for how long. With the Fed, and other major central banks, firmly committed to monetary tightening, the Bank of Japan is the outlier with its negative interest rates. Against this background, maintaining the yen supported will require continuous intervention for a prolonged period of time and will be a test to the resolve and capacity of the Japanese authorities.

Ricardo Evangelista – Senior Analyst, ActivTrades

Daily Market Commentary

European Shares

Stock markets extended declines on Friday in Europe, alongside Asian shares and US futures, amid fading appetite for risk on a global scale.

Benchmarks drifted lower, trading closer and closer to their annual low while Treasury yields continue to climb almost everywhere as investor sentiment is being weighed down by higher borrowing costs, elevated price pressure as well as the prospect of an economic slowdown to come.

The summer optimism, brought by hopes of a peak in inflation rates, has been proven to be short-lived and investors are now realising the current hawkish stance will maintain pressure on the markets for a longer period of time than initially anticipated.

With this uncertain environment, it is no surprise to see investors seeking havens, while waiting for solid evidence of an improving situation on the macro front.

The Stoxx-50 index is still flirting with its 2-month low around 3,400pts, trading inside a short-term bearish channel. The next support can be located towards 3,375pts and 3,355pts, the lowest level reached this year. Breaking this level would be extremely threatening for prices as it would open the doors to a deeper correction towards 3,300, 3,050pts and 2,730.0pts by extension.

Pierre Veyret– Technical analyst, ActivTrades


Disclaimer: opinions are personal to the authors and do not reflect the opinions of LeapRate. This is not a trading advice.

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