Equity bulls were missing in action on Thursday after a selloff in technology shares and prospects of higher U.S. interest rates pressured World stocks. Markets have washed away the caution during Friday’s trading session as Asian stocks steadied after the Bank of Japan left monetary policy unchanged. European equities found themselves supported by the renewed appetite for risk, and this positive momentum could rollover into the financial marketin the afternoon.
This has been an action-packed week layered with central bank meetings and political developments with investors most likely using the weekend to digest the myriad of news events.
Bank of Japan holds fire
As widely expected the Bank of Japan offered no surprise to markets by keeping monetary policy unchanged in its June board review. The central bank left interest rates unchanged at -0.1% and the 10-year government bond yield around zero while maintaining its mammoth annual holding of bonds at 80 trillion yen. Although Friday’s statement did adopt a more upbeat tone with the BoJ upgrading its assessment for private consumption and overseas growth, inflation is still far from the 2% target.
When focusing on the U.S. dollar/Japanese yen (USD/JPY) currency pair, the extreme divergence in monetary policy between the Federal Reserve and Bank of Japan could play a role in where the pair concludes this year. While prices are currently bearish amid risk aversion, the prospects of higher U.S. interest rates could empower USD/JPY bulls in the medium to longer term. From a technical standpoint, the current bearish trend is at risk of becoming invalidated if prices breakout and close above 111.60.
WTI crude struggles below $45
Oil prices descended deeper into the abyss on Thursday as bearish investors exploited the unexpectedly large build in gasoline inventories to instigate renewed rounds of selling. The King Dollar’s return weighed heavily on the commodity by making it more expensive for buyers utilizing other currencies. With oil displaying repeated signs of weakness despite OPEC cutting production by 1.8 million barrels a day and U.S. shale pumping incessantly, there is a threat of price weakness becoming a recurrent theme.
Sentiment remains firmly bearish towards oil with further downside expected as the oversupply fears grant sellers the permission to attack the commodity. From a technical standpoint, WTI crude is heavily bearish on the daily charts. Traders may utilize the dynamic $45 resistance to send WTI towards $43.
Gold bears conquer $1260
Gold found itself vulnerable to heavy losses on Thursday, building on the selling momentum that started during Wednesday evening after the Federal Reserve dished out an unexpected hawkish surprise. A resurgent Dollar amid the Fed’s optimism over U.S. economic growth has contributed to Gold’s woes with the metal descending to a fresh week low at $1252 during early trading on Friday.
With the zero-yielding metal visibly dictated by U.S. interest rate hike expectations, there is a risk of further downside if speculations mount over the Federal Reserve raising rates again this year. Although risk aversion from both Brexit developments and political uncertainty in Washington could support prices, short-term bears remain in control below $1,260. From a technical standpoint, previous support around $1,260 could transform into a dynamic resistance that encourages a decline towards $1,240.
Currency spotlight – EUR/USD
The euro/U.S. dollar (EUR/USD) currency par tumbled to a two-week low at 1.1132 on Thursday after the more hawkish tone by the Federal Reserve boosted the U.S. Dollar. Regardless of recent losses, sentiment towards the Euro remains bullish and the currency should remain supported by the encouraging macro-fundamentals from the European economy.
Focusing on the technicals, the EUR/USD remains bullish on the daily charts and may be in the process of creating a new higher low. A breakout above 1.1230 should encourage a further incline higher towards 1.1300. In an alternative scenario, weakness below 1.1100 opens a path back towards 1.1000.