BoJ futility continues, ECB seen as dovish BoJ futility continues, ECB seen as dovish BoJ futility continues, ECB seen as dovish

BoJ futility continues, ECB seen as dovish

Forex 6 minutes to read
John Hardy

Head of FX Strategy

Summary:  Soft risk sentiment continues to weigh on Asian bourses, with JPY serving as a proxy for risk appetite as markets retreat from their post-December 26 local highs.

Risk sentiment remains rather weak after an ugly session for US equities yesterday. US-China trade talks are going nowhere fast as the Trump administration cancelled lower-level talks with two Chinese officials scheduled to come to Washington ahead of next week’s visit of Liu He, the Chinese Vice Premier, purportedly due to disagreements over intellectual property rules.

This was justly taken as a sign that the promise of a trade deal has stalled at best, and the contentious issue of the Huawei CFO and whether Canada will extradite her to the US for trial is a dangerous factor at play as well. Overnight, the People's Bank of China injected a massive CNY 257.5 billion in one-year liquidity with the first use of the “TMLF” (Targeted Medium-term Lending Facility), a tool announced in December. Meanwhile, USDCNY was pushed back lower below 6.79 overnight after four days of higher closes.

Overnight, the Bank of Japan drastically cut its fiscal year 2019 inflation forecast (the year starting from April 1) to a paltry 0.9% from the prior 1.4% projection. This engineered a modest JPY sell-off overnight, though Kuroda’s rhetoric failed to show any dramatic change of stance despite the implications of BoJ futility with its current policy mix. From here, would still suspect that JPY crosses are an FX proxy for broader risk appetite – important if the world’s major equity markets have now topped out after the impressive comeback from the late December lows.

Little on the agenda today save for watching whether new highs in many GBP pairs can hold (important 1.3000 level in GBPUSD not far away, EURGBP, GBPCHF and GBPJPY all breaking here) and watching headlines and animal spirits ahead of tomorrow’s European Central Bank meeting. 


An important test within the G3 awaits as we watch whether EURUSD breaks down through 1.1300 post-ECB (extensive coverage on this already in recent days). But the relative JPY strength is another interesting point as EURJPY has recently found resistance at the pivotal 125.00 area and could head lower here if the ECB sufficiently impresses with a dovish tilt tomorrow.
Source: Saxo Bank
The G-10 rundown

USD – an important test of USD resilience over the ECB and whether ECB shift to a more cautious outlook engineers a EURUSD sell-off or if this is largely priced in. Otherwise, watching for USD responsiveness to possible weaker risk sentiment.

EUR – the ECB is the near term event risk – with a bit of interest over the Euro Zone flash Jan. PMI’s tomorrow morning as well. The ECB’s rate hike guidance surely in for a revision, and the market will look for whether this meeting looks like a setup meeting for new easing – Bloomberg and others are discussing the potential for a new TLTRO – as early as March, should the incoming data support this notion. The German ZEW survey of current conditions cratered to 27.6 for January, its lowest since January 2015.

JPY – the yen eases lower again overnight on the BoJ inflation forecast adjustment, but if weak risk appetite continues and US yields head lower again, JPY crosses may trade heavily again – still, JPY implied volatility continues to get crushed after the huge December-early January spike. USDJPY one-month implied went from below 6% in mid-December to spike above 10% over the JPY flash crash and is now back below 7%.

GBP – sterling continues to find resilience as May’s own cabinet is at war over whether to use the threat of a No Deal as a leverage in negotiations with EU counterparts. Consensus increasingly swinging to avoidance of a No Deal, which could at least support GBP toward the bottom of the EURGBP range if the ECB sufficiently dovish.

CHF – GBPCHF poking at the 200-day moving average again – this has been a key indicator for that pair stretching back to a year or more, so stay tuned.

AUD – the Aussie in for a weak session yesterday, but plenty of headline risk and the low volatility in USDCNY likely an obstacle in interest to trade AUD until we get a sense of the US-China trade negotiation outcome.

CAD – USDCAD doesn’t look to be the highest beta play on USD direction. Canada Retail Sales up today. The downside break level in USDCAD (sub-1.3200 lows) will soon converge with the 200-day moving average.

NZD – massive NZD rally versus AUD on the CPI print – far in excess of the implications from the modest upside surprise on that inflation gauge (2-year NZ yields up less than two basis points from two days ago). As important was likely a recent shift in positioning on technical considerations and hopes for a US-China trade deal that were partially dashed yesterday. Australia’s economy is far more leverage to exports to China than New Zealand’s. 

SEK – SEK not moving here as we await a catalyst – not helpful at the margin for SEK bulls if risk sentiment suffers further.

NOK – a weakening of risk sentiment and oil prices – which have often been correlated of late – could set in motion a minor NOK long squeeze – certainly frustrating for EURNOK bears that the 9.75 pivot area wasn’t taken out quickly on the recent attempt – risking a further tactical consolidation. Norges Bank up tomorrow – no drama expected.

Upcoming Economic Calendar Highlights Today (all times GMT)

• 1330 – Canada Nov. Retail Sales
• 1500 – US Jan. Richmond Fed Manufacturing
• 1500 – Euro Zone Jan. Consumer Confidence
• 0030 – Australia Dec. Employment Change / Unemployment Rate


The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.