Volatility has hit the highest level in years as 4 Central Banks are set to deliver their key messages in 4 hours. Yesterday’s Fed rate decision to keep rates the same was not a surprise, neither were the pessimistic comments from FED chairwoman. However the BoJ did disappoint the market, and in combination with the Gloomy FED outlook delivered earlier, ignited a selloff which was long last seen.
Currencies: USDJPY collapsed overnight after a calm FOMC rate decision. The pair dropped over 200 pips in 24 hours from 106.35 to almost 104.00 after BoJ left rates unchanged and refrained from taking further stimulus steps. In other words BoJ remains optimistic as to the picture of the Japanese economy even if the surging Yen and slumping stock markets threaten the fragile economic recovery of the country. The JPY also hit its highest level since January 2013 against the EUR and a 4 year peak versus the AUD. We do not expect any significant news from the Swiss National Bank or from Bank of England today. Especially Bank of England has been very explicit about staying sidelined until after the EU referendum. This will complete the 4 Central Banks releasing news in 24 hours.
Stocks:FOMC statement and delusional BoJ were a perfect cocktail to ignite a market selloff last night. Japanese NKI is trading -3% while European indices have also opened -1% lower today. Stocks on the major indices were relatively flat following the Fed’s release at 2:00 p.m. eastern standard time, before a wave of sell orders pushed stocks into negative territory in the final half-hour of trading. As we get close to Brexit vote, volatility will only spike, so don’t forget to put your seat belt on by using your stop losses carefully.
Oil and Gold: GOLD touched its highest since August 2014 thanks to the Slumping stock markets following BoJ and FOMC meetings. The yellow metal is sensitive to moves in U.S. interest rates. A gradual path to higher rates is seen as less of a threat to gold prices than a swift series of increases. Brexit concerns also saw US Crude oil fall 1% to $47.50 a barrel on track for the 6th straight day of losses.
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