EUR/USD, USD/CHF, USD/JPY flows - AI/tech pressure drags dollar ; post CB covering
AI/tech pressure out of 'cash burning' earnings pressing yields, dollar lower
BoJ see higher inflation, as per sources, still line up move towards neutral
BoJ completed the central bank set for the week, with the 8-1 hold as universally expected, while also slightly revising up inflation forecasts (FY27 to 2.6% from 2.4%), as also kite flown. Move to accelerate the divestment of ETFs (Y860bn a year from Y330bn) more of a surprise though and does come with the current market already trading quite weakly from the AI/tech wobbles.
Ueda’s press conference goes with the grain for market assumptions that this hold today will give way to the next hike, with Dec probabilities sitting just above 50% and a hike fully in by January. While Ueda was not exclusively hawkish, noting for instance tougher credit conditions especially for SMEs, and a need to monitor the impact of action to date, the overall thrust remains focused on the ongoing gap between current and neutral and the need to adjust policy ‘proactively’ rather than passively to meet the 2% target with risks of inflation overshooting that cannot be ignored.
USD/JPY’s day-low tests to 157 out of the announcement not holding but the overall setup still remains top-heavy. Aside from the BoJ, main focus remains AI/tech and ongoing evidence as discussed recently that bouts of pressure are currently weighing the ‘hot money' and positive-yield-correlation supported dollar, rather than haven lifting it .
Recent earnings have kept concerns over cash burn and impact on net free cash generally, Intel and Amazon following on from Google’s big hit, and with Nasdaq down a further 2% on the break of the recent post Aug range - potentially opening up space to stretch back into the late July lows, and extend a post May near-term top. AI-centric risk hits tending to feed through to US yields and dollar and lend support rather to CHF and JPY – US10s also testing through if so far holding the Sep 4. 4.92% lows. Through there and the recent action looks more like a bigger intermediate top to return to the 4.5-6% prior range area.
USD/CHF currently sits on key support at the 0.82~ figure that separates the 0.82-0.84~ recent highs from the prior band down to 0.8~ +/-.
EUR/USD also seeing a little bit of further post Fed, ECB short covering / profit-taking and that could become mildly more squeezy on a hold clear of 1.12