Japanese yen strengthened against the greenback by nearly half a percent after Bank of Japan (BOJ) announced to reduce the amount of monthly JGBs purchasing by ¥190bn – a signal that the central bank is shifting towards tightening policy.

This unexpected move triggered ‘knee-jerk’ reaction in forex, equity and bond markets, with the yield of longer dated 20- and 40-year bond rallying to their highest level in a month.

Technically, USD/JPY is still in a range-bound within a narrow zone between the 112.25 and 113.50 area. Despite of firmness over the past two days, there is still lack of clear direction in its daily chart. A meaningful breakdown below the support 112.25 will open room for further downside towards the next major support level at 111.39 area. 

USD/JPY

The US dollar index rallied for a third day to 92.20 area, strengthening against all of its G10 peers but not yen due to above-mentioned policy shift. Without significant changes in the macroeconomic environment, we have reason to believe that this is more like a technical rebound as short sellers start to take profit while dollar bulls increases their long positions.

CMC’s client sentiment function shows that among CMC’s global client basis, the sentiment on USD/JPY and EUR/USD are mixed. Top clients are positioning 49% vs. 51% in long and short USD/JPY positions respectively, whereas the case for EUR/USD is 64% vs 36%. Traders has slightly increased their EUR/USD long position by 2% over night in anticipation for euro to rebound.

Client Sentiment – USD/JPY vs. EUR/USD

Crude oil prices broke out above key resistance level to more than three-year highs as market sees more tightening in the supply market. The Brent Oil Cash contract surged to above US$69 per barrel for the first time since 2015 ahead of tonight’s DoE commercial crude inventory data.  According to Reuters, market participants expect the stockpile to drop by 3.5 million barrels this week, extending its seven consecutive week’s slump.

OPEC-led output cuts and a dip in the US rig count numbers also fuelled the rally of oil prices, which is bringing favourable sentiment to energy and offshore & marine sector.

Market Calendar - Crude oil Stocks (Net Change)

Strengthening in the US dollar index is calling for a correction in precious metals prices, which have already come off their recent peaks. Gold and silver prices have entered into technical correction with immediate support levels at $1,295 and $16.73 respectively. The momentum indicators DMI, RSI and MACD, which are usually leading indicators, have already given bearish signals. Next traders need to watch for the 10 Day SMA and SuperTrend (10, 2) to flip downwards to confirm a trend reversing.

Gold –Cash

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.