Financial markets are on standby ahead of Friday’s Bank of Japan (BoJ) monetary policy decision which is widely expected to conclude with unleashing a mammoth 28 trillion Yen stimulus to support the Japanese economy.
For an extended period, Japan has been pressured by the global instability with Prime Minister Shinzo Abe wasting no time in admitting the Brexit shockwaves could threaten the nation further. Risk aversion continues to empower the yen, ultimately punishing Japanese exports and consequently leading to prolonged periods of static growth and inflation.
Sentiment remains bearish towards Japan and the horrible cocktail of factors stressing the economy could force the BoJ to act swiftly in an effort to regain economic stability. Although expectations remain high over the bazooka stimulus package, the central bank is notoriously good at surprises with fears already lingering whether any action will be taken.
It should be kept in mind that the persistent uncertainties in the global markets have created a period of central bank caution. Most major banks are on standby amid the negatively morphed financial landscape and this could be the greatest challenged presented to the BoJ.
Dollar stabilizes post FOMC
The dollar displayed some stability during trading on Thursday as investors digested the possibility of a US rate increase before year-end. Wednesday’s hawkish tilted FOMC statement has bolstered sentiment towards the dollar with further appreciations expected as US data improves.
Investors may direct their attention towards the unemployment claims which could compound to the attributes needed for the Fed to make a move in 2016. US labour continues to display signs of resilience in a period of global uncertainty and if next week’s NFP report follows this pattern then the Fed could be closer to breaking the tradition of central bank caution.
Sterling still pressured
It feels like everything thrown at the sterling which should elevate its value is swiftly erased by the persistent post-Brexit uncertainty which continues to haunt investor attraction towards the currency. The downside pressure is intense and this was observed on Wednesday when sterling bears were unfazed by the positive second quarter GDP results.
Short term dollar weakness has done little to keep the GBP/USD buoyed with further declines expected as expectations mount over the Bank of England cutting UK interest rates.
From a technical standpoint, the GBP/USD is bearish and a sharp decisive breach below 1.3100 could open a path towards 1.2800.
Commodity spotlight – WTI crude
WTI crude was left vulnerable to further losses on Wednesday following the unexpected builds in crude and gasoline inventories which intensified the concerns over the excessive oversupply of oil in the markets. Prices tumbled to fresh three-month lows at $41.65 and could be poised for further declines as the recurrent oversupply fears haunt investor attraction.
Oil remains fundamentally bearish with prices on route to $40 as the horrible combination of oversupply woes and speculations of faltering demand encourages bearish investors to install a heavy round of selling. From a technical standpoint, the break down below $42 could invite sellers to drag prices lower towards $40.
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