Equities struggle for a second day | Oanda

USD/JPY Weekly Review: Strong Dollar and Yen's Resilience in G10 Currencies

Equity markets have turned more negative as we go into the middle of the week, with inflation and growth concerns potentially triggering the latest declines.

 

We saw a decent recovery last week as investors reacted to the S&P 500 falling into bear market territory by buying the dip and hoping it marked the end of the decline. There wasn’t anything to be particularly bullish about when it came to the data or the improved prospects for the economic outlook which is why many were referring to it as a bear market rally and perhaps that’s what we’re now seeing unfold.

 

The euro area inflation data this week offered another reminder of the problems facing the economy and central banks in the quarters ahead which may have taken the wind out of the sails of the recovery trade. While some are wondering whether so many rate hikes will actually be necessary to rein in inflation, it’s far too early to make that assumption and any recovery will struggle to take hold until that changes.

 

Hawkish BoC lifts the CAD

The Bank of Canada continued its super-sized hiking cycle today and signalled there’s more to come as it tries to get inflation under control. While the decision to raise rates by 0.5% to 1.5% was expected, the language that accompanied the decision was considerably more hawkish. It referenced that the risk of inflation becoming entrenched had risen and that it was prepared to act forcefully in order to meet its 2% target.

 

Markets are pricing in another 50 basis point hike at the next two meetings followed by 25 basis points at those after and given the language, ​ that may be a little conservative. Still, the Canadian dollar rallied strongly in response to the statements and could be well supported if data continues to support the central bank’s view.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/

 

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

USD/JPY Weekly Review: Strong Dollar and Yen's Resilience in G10 Currencies

Craig Erlam

Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.