Central Bank Divergence

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Forex Market News

Central Banks Divergence

The big news at the end of last week was the FOMC and BOJ. The two Central Banks that are on a diverging path of monetary policy that saw the USD/JPY spike 330 pips on Friday. Thursday’s FOMC saw the Greenback gain in strength, although it flat lined on Friday against most pairs, as Yellen quit out of stimulus and got hawkish (bullish) on the interest rate market. Then on Friday Kuroda expanded the Japanese stimulus package by another 10 trillion yen per year, bringing their spend to 80 trillion (US$713 billion) a year.

Currency War

As you readers should be aware by now, this stimulus spending equates to a currency war. It effectively devalues the currency and that is in a way exporting deflation in a bid to create inflation at home. It is a dangerous war that also diverges the rich/poor gap and creates asset bubbles.

Trends

So, what do I see with the markets now. A while back I said the US dollar will continue to run into Christmas and I hold to that. The Yen now will continue to slide against all pairs and the Euro will be not far behind it. The Euro will also most likely add stimulus and perhaps before Christmas. The pound will chop about, it was looking strong and likely to raise rates but there are growing signs that this may be longer than expected. Yield from the Kiwi and Aussie interest rates may see them hold up for a while longer but as the US start to lift rates I expect that the carry trade will start to reverse, that is next year though.

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