Focus turns from the US to the Bank of Japan meeting

Stock markets around the world have been relatively steady today as we move into a three week holiday trading season with limited news flow until January. US indices finished up slightly in light trading.

News flow on the day was mixed but nothing really had a major impact. Terrorist attacks in Turkey and Germany kept a move back into gold and other defensive havens going. In the US, flash service PMI declined a bit while Fed Chair Yellen talked up the job market but didn't mention monetary policy. Electoral College voting has been going as expected despite the protests with Donald Trump closing in on confirmation at the time of writing.

The main focus of traders now turns to the last major financial event of 2016, today’s Bank of Japan meeting. The Japanese Yen has been the worst performing major currency since the US election having been totally steamrolled by the Dollar. The main reason for this action is that traders have been expecting to see a big divergence in monetary policy trends in the coming year with the Bank of Japan expected to keep its pedal to the metal stimulus going while the US Fed is expected to be increasingly hawkish and raise interest rates several times in 2016.

Some of the pressure started to come off JPY and gold today after a survey released over the weekend indicated economists are expecting two interest rate increases in 2017 less than the three rate hikes the street has been expecting based on last week’s dot plot. Today’s Bank of Japan decision and statement may also have an impact on trading in the Yen. A neutral to hawkish statement could spark a bigger bounce in the Yen while a dovish statement could undermine the Yen’s recovery. Japanese economic data has been improving lately and the collapse of the yen in recent weeks could provide additional support. Because of this, Governor Kuroda may not be under quite as much pressure to do all the heavy lifting himself.

JPY has been bouncing back relative to USD, GBP and EUR ahead of today’s big decision and JPY related pairs may be active around the news. In addition, traders should note that exporter heavy Japanese indices tend to move in the opposite direction of their currency.

Corporate News

There have been no major announcements after the US close today.

Economic News

Significant announcements released overnight include:

US flash service PMI 53.7 vs previous 54.9

Germany IFO current conditions 116.6 vs street 115.9
Germany IFO Business sentiment 111.0 vs street 110.7
Germany IFO expectations 105.6 as expected

Upcoming significant economic announcements include:

(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)

8:45 am AEDT NZ Food price index previous (0.8%)

10:50 am AEDT Bank of Japan interest rate (0.1%) no change expected

7:00 am GMT Germany producer prices street (0.2%)
11:00 am GMT UK CBI distributors previous 26

8:30 am EST Canada wholesale sales street 0.6%

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