Yen gains as BOJ leaves rates unchanged and signals a cut
Global stocks were mixed today as traders reacted to the Fed interest rates decision and a series of corporate news. Yesterday, the Federal Reserve made a hawkish rate cut as most investors were expecting. It was a hawkish Fed because officials sounded optimistic about the economy and paused on further rate cuts. On the corporate side, the market received a confirmation that a new auto giant was being formed after the merger of Peugeot and Fiat Chrysler. The merger will create a company that sells more than 8.7 million cars every year. The combined company will generate more than $190 billion in annual revenue and more than $12 billion in operating profits. The company will be slightly bigger than General Motors.
The euro was relatively unchanged after Europe released a series of data. Data from Eurostat showed that the EU economy continued to grow at a modest pace in the third quarter. This growth defied expectations that the economy would enter a recession in the quarter. The economy expanded by 0.2% in the third quarter, giving it an annual growth rate of 1.1%. This is still lower than the 2018’s growth of 1.1%. However, data showed that Christine Lagarde will find a difficult ECB when she becomes President soon. Inflation in the region declined to 0.7% in October. This is much lower than the ECB target of 2.0%. Meanwhile, the Hong Kong economy entered a recession following recent protests.
The Japanese yen continued to soar against the USD after the Bank of Japan delivered its interest rates decision. The bank left rates unchanged at -0.1% as was widely expected. 10-year bond yields were capped at about 0%. Meanwhile, the bank also left government bond purchases at $736 billion. The bank also pointed out that it could be forced to slash rates again. The BOJ finds itself in a difficult position. Interest rates have been at a negative territory for years and the unemployment rate is at 2%. However, inflation has been inexistent. This raises the question about whether another rate cut will spur inflation. In the United States, initial jobless claims rose by 218k while continuing jobless claims came in at 1.690k. The core PCE price index increased by 1.7%, slightly lower than the previous 1.8% while personal spending remained unchanged at 0.2%.
The USD/JPY pair declined sharply following the Fed and BOJ decisions. The pair reached a low of 108.21, which was the lowest level since October 23. The RSI dropped to a low of 18, which was the lowest level in several months. The momentum indicator declined sharply. While the pair may continue moving lower, there is a likelihood of a slight pullback as traders calculate their next move.
EUR/USD pair was little changed after slightly positive data from the European Union. The pair is trading at 1.1160, which is slightly below the high of 1.1175. This is along the 14-day EMA and slightly higher than the 28-day moving averages. The RSI has moved from the overbought level of 77 to the current 59. The pair appears to have paused after the significant gains seen yesterday after the Fed decision.
The GBP/USD pair continued the rally started on October 24 when the pair was trading at 1.2787. The pair reached a high of 1.2965. On the one-hour chart, the pair is above the 14-day and 28-day moving averages while the RSI has reached the overbought level of 70. The momentum indicator rose to above 100. The pair may continue with the trend to test the important resistance level of 1.3012.