• Policymakers determined to push back against market interest rate expectations
• Any surprises to come from the BoJ?
• EURJPY steadies around notable support zone

Not the most thrilling start to the week but that’s to be expected given the number of major events over the last few sessions and the absence of anything significant today.

The second half of last week was quite the ride, with the Fed going further than many expected on rate cuts for next year, the ECB then pushing back stronger than anticipated, and the BoE proving they’re not even up for discussion yet as three policymakers voted to hike.

That said, it’s almost like the latter two never happened as markets are still pricing 150 basis points of cuts from the Fed and ECB next year and 100 basis points from the BoE.

There’s every chance the ECB messaging was designed to prevent a repeat performance of how markets responded to the Fed. And with the former not releasing a dot plot as their US counterparts do, it was easier to take that position. A lot is now priced in and the ECB was likely driven by the desire to stop conditions easing any further.

We’ve seen more pushback from policymakers on both sides since which suggests no one is particularly pleased with just how carried away investors have got. But as yet, it hasn’t had too great an impact and it may take a much bigger effort and some disappointing economic figures to kill the buzz.

We have inflation data from the US and UK this week which could easily do just that, although in the case of the former, the CPI numbers released a couple of weeks earlier tend to be more impactful even if these are the Fed’s preferred measure.

The BoJ overnight tonight will also be interesting given the amount of speculation about ending negative interest rates in the new year and further tweaks to yield curve control. This week probably still comes too soon but I would say this is still very much a live meeting that could surprise a few, if not in the form of the decisions then potentially the messaging.

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EURJPY recovers ahead of BoJ

We’re seeing some consolidation in EURJPY over the last couple of weeks around a key area of support, following a sharp sell-off since late November.

EURJPY Daily

Source – OANDA

A move below the 200/233-day simple moving average band could be viewed as quite bearish, with it having traded above it since March and seen support there over the last few weeks. That it coincides with a rising trendline and prior support level could further support that, as well as the 38.2% Fibonacci retracement level – March lows to November highs.

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