EURUSD TECHS: Trend Outlook Remains Bearish

JGB futures are higher, +13 compared to settlement levels, after initially gapping lower on news that the BoJ had ended its negative interest rate policy (NIRP) and scrapped Yield Curve Control (YCC).

• The BoJ hiked rates to 0.0% (lower bound) to 0.1% (upper bound) from negative territory. This is the first rise in interest rates since 2007.
• The short-term rate will now be the primary monetary policy tool. Still, the central bank expects financial conditions to remain accommodative.
• In terms of votes it was 7-2 to raise rates (to 0-0.1%), while JGB purchases will continue largely as before (in 8-1 vote). Currently the bank purchases around 6trln yen per month. It was a unanimous vote to end ETFs and J-REITS purchases. The bank will also gradually reduce the amount of CP and corporate bond purchases (looking to end such purchases in a year).
• On the economy, the virtuous cycle between wages and prices has become more solid, thereby signifying the price stability target would be achieved.
• The cash JGB curve has maintained its twist-flattening, pivoting at the 2s, with yields 1bp higher to 2bps lower. The benchmark 10-year yield is 2.4bps lower at 0.743% versus its YTD high of 0.801%.
• The swaps curve has twist-steepened, with rates 2bps lower to 2bps higher. Swap spreads are mostly wider.
• Tomorrow, the local calendar is empty.

Gold is little changed in the Asia-Pac session, after closing 0.2% higher at $2160.36 on Monday.

• It was a relatively subdued start to a busy week of central bank meetings, including the FOMC, BoJ, BoE and the RBA.
• Nevertheless, bullion is holding near record highs after rising sharply since mid-February, a rally that was partially driven by expectations the Federal Reserve was moving closer to easing policy. FOMC dated OIS is currently indicating a 52% chance of a Fed cut in June.
• According to MNI’s technicals team, the recent break above $2135.4, the Dec 4 high, reinforced bullish conditions and signaled scope for $2206.6 next, a Fibonacci projection. Short-term conditions are overbought and a deeper retracement would allow this set-up to unwind. Firm support is at $2112.9, the 20-day EMA.

Oil prices have held onto most of Monday’s gains during APAC trading today. WTI is down 0.2% to hold just above $82/bbl where it has found support during the session. Brent is also 0.2% lower at $86.72, close to the intraday low. The focus of oil markets is Wednesday’s FOMC decision, with rates widely expected to be unchanged, and any further geopolitical developments. The USD index is slightly higher.

• With the IEA now forecasting a small deficit in oil markets this year due to stronger demand, supply developments will continue to be watched closely. Bloomberg estimates that China refined a record amount of crude at the start of 2024. US crude stocks fell sharply the week before last as refining rates increased in the face of strong gasoline demand. US API data for last week is released today with the official EIA information due on Wednesday.
• Last week the Ukraine struck a major Russian refining facility and over the weekend drones targeted refineries in a number of Russia’s regions with some being hit. Bloomberg is reporting that JP Morgan estimated that Russia’s refining capacity has been impacted by 900kbd. Further Ukrainian attacks are likely to add to the current crude risk premium.
• OPEC+ supply cuts have been extended to the end of June but not all members are complying with their quotas. Iraq announced that it will reduce its exports to make up for overproducing.
• Later there are US February housing and Canadian CPI data. ECB’s de Guindos speaks today too.