EUR/JPY 700-pip rally & Bank of Canada decision - DAILY MARKET UPDATE

MARKETS

There is a clear and rising appetite for riskier assets this week. As we move into Wednesday, stock markets, copper, oil, the euro, pound and Australian dollar are all coming off the back of strong daily gains. At the same time known havens like the dollar and Japanese yen are breaking down. The yen is the weaker of the two with USD/JPY breaking above 108, a level which had acted as resistance for the past 6-weeks. 

“Whatever method you use to enter trades, the most critical thing is that if there is a major trend, your approach should assure that you get in that trend.” 
- Richard Dennis (Creator of ‘Turtle Traders’)


EUR/JPY: Germany to ease travel restrictions

The headlines all fell to EUR/USD but it has been EUR/JPY making the standout gains in the last 24 hours. As the euro broke higher, then yen broke lower, meaning a 150pip gain for EUR/JPY and leaving the currency pair with a whopping 700-pip gain in the last month. 
Later today Germany will announce its plans to ease travel restrictions put in place since the pandemic began in Europe. Germany has been gradually lifting lockdown restrictions and is now aiming to ease the burden on its tourist industry before the start of the summer holiday season. Europe’s biggest economy aims to lift travel warnings and replace them with ‘guidelines’ for EU and some other countries, adding an economic boost to Europe– and extra optimism towards the euro currency.

AUD/USD: RBA decision

The Aussie dollar continued its run of good form amid the Australian central bank decision on Tuesday. The RBA opted to keep its cash rate and 3-year yield target at 0.25% as expected. What was a little less expected- and good news for the Aussie currency - was the suggestion (in the official statement) that the contraction in Australia might not be as bad as the central bank had once expected. 

USD/CAD: Last Poloz rate decision

The Loonie has been one of the standout gainers vs. the US dollar this week. From its peak on Friday (29th) USD/CAD is lower by 300 pips having broken below a descending triangle pattern. The Bank of Canada will decide interest rates on Wednesday, where no policy change is expected. It will be the last meeting for Stephen Poloz as Governor. At the last meeting in April, the BOC scrapped forecasts and offered two extreme possibilities of -15% or -30% contractions in GDP by the second quarter. If the bank were to suggest its forecasts have moved towards the more favourable outcome, that should be positive for the CAD.