Morning Movers: Yen tumbles as BOJ expected to keep YCC intact, Nasdaq’s rebalancing

USD/JPY  Yen dives on reports BOJ sees little need to adjust YCC

Central bank-a-palooza was supposed to start next week, but traders got a head start after reports surfaced that the BOJ saw little urgency to adjust their yield curve control program (YCC).  It looks like FX traders are expecting the BOJ to maintain their ultra-loose monetary policy and for the Fed to deliver a quarter-point rate rise and to have a wait-and-see approach about the September meeting.  The Japanese yen is the weakest major currency and that could remain the case if risk appetite remains healthy.  It seems that while the BOJ stands pat, the other major central banks are tightening and that should continue to drive that interest rate differential trade.

Soft landing hopes are not getting derailed by earnings season so far, in fact market breadth in the stock market continues to improve which could help keep the rally going strong.

Initial Rate Decision Expectations

• The Fed will raise rates by 25bps and likely signal a wait-and-see approach for the September meeting (saving that decision for the end of August at Jackson Hole).
• Analysts are unanimously expecting the ECB to raise all three key rates by 25bps but are unsure what will happen in September
• The BOJ is expected to keep rates steady, no change to YCC, and revise up its inflation forecasts for this year alone.

Soft stochastics suggest euro pullback

The EUR/USD weekly chart shows a bearish bias could be emerging as the slow stochastics overbought conditions is seeing a tentative drop below the 200-week SMA.  If bearish momentum accelerates key support will come from the 1.1080 level, with major support eyeing the heavily tested 1.1030 price level.  Intraday resistance resides at the 1.1150 level, with major resistance be provided by the psychological 1.1200 handle.

Nasdaq Friday Volatility

The Nasdaq could see excessive volatility at the close as a special rebalancing will address overconcentration in the index by redistributing the weights.  In addition to this special rebalancing, traders will have to deal with options expiration.

Three mega-cap tech giants (Apple, Nvidia and Microsoft) make up almost 30% of the weight in the fund, which is not diverse enough for a key index.  Some profit-taking might occur ahead of busy next week that contains handful of market moving events that include three big rate decision, several key earnings, and key GDP, ECI , and PCE data.

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