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Rising geopolitical risk played into the hands of the yen as the currency’s safe-haven appeal drove gains. This resulted in USD/JPY retreating to a low of 101.80, before a minor recovery to 102.10. The pair is now trading relatively steady heading into the BoJ decision. While a change in policy from the meeting seems unlikely, there has been plenty of talk around a stalling economy and inflation slowing as the impact of the sales tax hike wanes. With this mind, some traders feel the BoJ’s hand might be forced at some stage and any shift in language reflecting this could impact the pair. In the absence of such developments then safe-haven appeal could continue to weigh on the pair with support in the 101.50 region.
The retreat in US equities continued as heightened geopolitical risk discouraged buying. For a while everyone has been talking about stretched valuations and perhaps this will continue to be used as an excuse to avoid buying. Importantly as well, the S&P 500 closed below the 100-day moving average which has held the price action since December 2012. As far as US data is concerned, we’ve now switched to a situation where good data is bad for equities as investors attempt to decipher when we can see a move in the fed funds rate. With the 100-day moving average breached, focus now shifts to the round number support at 1900.
The DAX has come under significant pressure as the Russian situation escalates and economic data deteriorates. Germany bunds printed a negative yield of -0.004 as safe-haven demand remains rampant, while the periphery struggles. Importantly the DAX is down around 10% since its July highs and is also testing support in the 9000 region. Later today we have Germany’s June trade report and this might set the tone for equities. It’ll be interesting to see if this 9000 level holds.
REA reported full-year earnings today with the headline net income coming in below estimates at $149.7 million, while the market was looking for about $152.8 million. While overall sales were a touch above estimates, subscription revenue fell 9%. As expected the company is going through leadership change and this might lead to some near-term volatility. These results are likely to lead to a pullback at the open, but perhaps support in the $45 region will hold.