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BOJ Meeting Preview & EUR/CAD

Chart of the Day: EUR/CAD (Daily candlesticks)
Source: GKFX / MT4 (July 14, 2020)

EUR/CAD is testing its April peak after a 3-month rounding bottom formation. A breakout from this pattern signals powerful upside potential- in what would be an extension of the huge rally in February through March.

•    Pound drops in UK ‘Japanification’ after GDP disappointment
•    Preview: Japan & Canada rate decisions
•    JP Morgan reports record revenues in the pandemic
•    DAY AHEAD: BOJ meeting, UK CPI, BOC meeting
•    CHART: EUR/CAD Rounding bottom breakout
 

MARKETS


Optimism a deal can be struck on a Eurozone rescue package was likely the driver behind strength in the euro (see below our chart on EUR/CAD). The British pound meanwhile has suffered a setback, falling against most crosses after a 2-week rally.

There was a rotation (at least temporarily) into cyclical stocks as big banks reported second quarter earnings on Wall Street. Tech continued its decline after yesterday’s sharp reversal. It was a more tepid session in Asia where shares in Shanghai dipped despite better than hoped China trade data.

Gold and silver built on yesterday’s gains with the latter moving towards a test of $20 per oz. Oil is trading in a tight range near recent multi-month highs.
 

GURU WISDOM


“In the short term the market is a voting machine, but in the long run, it is a weighting machine.” – Benjamin Graham
 

GBP: Japanification


May UK GDP growth was much softer than hoped- near flat-lining after the 20% collapse in April. The data has renewed expectations for extra Bank of England stimulus and put pressure on Sterling.

The pound followed yields lower in bond markets where the yield on UK 2-year gilts fell below 2-year Japanese JGBs for the first time ever. It’s the ‘Japanification-effect’ in play where all rates go to zero.
 

JPY: BOJ Decision


At the last meeting the Bank of Japan expanded its corporate support measures to 110 trillion yen from 75 trillion before. It just downgraded its economic forecasts for all Japanese regions last week so another expansion in corporate support looks plausible, which were it to happen should be yen-friendly (USD/JPY negative).
 

CAD: BOC Meeting


Better economic data from Canada, including payrolls last Friday suggests incoming Bank of Canada Governor Tiff Macklem’s first meeting needn’t create any fireworks. Canada is gradually exiting lockdown and oil prices are well off their lows. Without any concrete new action it seems likely that any effect on the CAD will be fleeting. Still, with Canada’s government budget deficit ballooning under Prime Minister Justin Trudeau, the BOC won’t want to signal rates are going up soon.
 

JP Morgan


JP Morgan reported record revenues in Q2 with credit growth supported by huge government support. CEO Jamie Dimon said Tuesday. "You will see the effect of this recession. You’re just not going to see it right away because of all the stimulus."  With that view in mind the bank set aside almost $28 billion for bad loans in Q2, up nearly $10 billion from Q1- and nearly matching the biggest ever during the 2008 financial crisis.
 

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