A Sliding Scale Of Weakness In Yen, USD And Oil

At last night’s Bank of Japan meeting, the bank held rates flat while adjusting the target to reach their inflation goal of 2%. Coming into last night’s meeting, the bank had already posed numerous delays to their inflation target. Most recently, the BoJ adjusted their target for reaching their 2% inflation goal by March of 2018, which is just one month before the end of BoJ Governor Haruhiko Kuroda’s tenure atop the bank.

Last night’s forecast said that the BoJ expects that inflation will increase towards 2% in the second half of a period that runs to March of 2019. And considering that there are approximately 28 months until we reach March of 2019, this would mean that the bank isn’t expecting to reach 2% inflation until after Mr. Kuroda has left office. Or, to put it otherwise, hitting that target will likely be somebody else’s problem.

Nonetheless, these moderated inflation expectations helped to bring on Yen weakness as investors factored in an even more dovish Bank of Japan. On the chart below, we’re looking at EUR/JPY after last night’s BoJ meeting.

Chart prepared by James Stanley

USD down to support

We looked at the US Dollar last Friday in anticipation of a heavy slate of U.S. economic drivers for this week. Wednesday brings FOMC, Friday brings Non-Farm Payrolls and Tuesday of next week brings U.S. Presidential elections. So the next week is likely going to be pretty volatile for the Greenback.

But before we could even get to any of those major drivers, the US Dollar has staged a sell-off to move down to a very interesting support level around the 98-handle on DXY. On the chart below, we’re looking at an upward-sloping trend-line that’s functioned as support in the Dollar since October 11th, and just a bit lower around the 97.50 level we have a major psychological level that had also functioned as the July swing-high in DXY.