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Broader Themes Intact as Markets Pre-Position for BoJ Decision

FOREX
  • Commodity-tied currencies and namely the CAD and AUD underperformed modestly on Monday, but broader trends and themes were unchanged given the proximity to the BoJ and ECB rate decisions as well as the FOMC entering their pre-decision media blackout period.
  • The Bank of Japan rate decision due Tuesday takes focus going forward. While consensus looks for no change in policy, any guidance or suggestion toward potential tightening in April will be carefully watched by markets. JPY vols suitably bid ahead of the decision, with overnight implied marked higher to 17 points, implying a ~105 pip swing - around double the swing implied average background vol this year.
  • GBP/USD traded generally well, despite a lack of domestic newsflow. The pair extends the winning streak to four consecutive sessions of higher lows to keep the 50-dma trending higher, and acting as intraday support at 1.2646. Pre-BoE comms and the prelim January PMI data could be key for any test of these levels, particularly any standout trends for services inflation, after the ONS Y/Y services CPI topped forecast by 0.3ppts.
  • Particular pessimism on wages or the impact of recent earthquakes could prove JPY negative, and 148.80 will be eyed as the initial upside level - comfortably captured by the options-implied swing in spot.
  • Elsewhere, focus for the Tuesday session shifts to UK public finances data, the prelim Eurozone consumer confidence release and the latest ECB bank lending survey.

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