<p style=““ class=“text-align-justify“>The drop is also weighing on bond yields elsewhere, with 10-year Treasury yields also down 2 bps to 3.645% on the day. For now, it looks like the BOJ is managing to keep a hold of the new red line that was drawn this week at 0.50%. But let’s see how things unfold once we get past the holiday season and the turn of the year.</p><p style=““ class=“text-align-justify“>The constant run up by the market against the previous red line at 0.25% for months eventually proved too hot to handle for Kuroda & co. so they might have to face up against such pressures again soon enough.</p>

This article was written by Justin Low at www.forexlive.com.

<p style=““ class=“text-align-justify“>A glance at the major indices in Europe shows that:</p><ul><li>Eurostoxx +0.2%</li><li>Germany DAX +0.2%</li><li>France CAC 40 +0.2%</li><li>UK FTSE +0.4%</li><li>Spain IBEX +0.3%</li></ul><p style=““ class=“text-align-justify“>This comes as S&P 500 futures are marginally positive, up 3 points, or 0.1%, on the day currently. Overall, risk sentiment is holding up and finding some bit-part relief following the selloff from last week. That said, the technical outlook remains on the ropes as pointed out earlier <a target=“_blank“ href=“https://www.forexlive.com/news/a-bit-of-relief-for-equities-but-the-coast-is-not-clear-just-yet-20221222/“ target=“_blank“ rel=“follow“>here</a>.</p><p style=““ class=“text-align-justify“>Elsewhere, a retreat in 10-year Japan government bond yields to 0.41% is pinning Treasury yields lower as well. In turn, the greenback is slightly lower across the board. USD/JPY is down 0.4% to just below 132.00 while GBP/USD is keeping a slight bounce just above its 200-day moving average of 1.2078 to trade around 1.2090 currently.</p>

This article was written by Justin Low at www.forexlive.com.

<ul><li>Prior +3.2%</li><li>Market index 212.5 vs 210.7 prior</li><li>Purchase index 182.5 vs 182.6 prior</li><li>Refinance index 371.4 vs 350.5 prior</li><li>30-year mortgage rate 6.34% vs 6.42% prior</li></ul>

This article was written by Justin Low at www.forexlive.com.

<p style=““ class=“text-align-justify“>I think it might be safe to say that we’re in the year-end stretch now. There isn’t much to explain the drop in the pound today, with most other major currencies not doing a whole lot – the kiwi being the outlier as noted earlier <a target=“_blank“ href=“https://www.forexlive.com/news/light-changes-among-major-currencies-for-the-most-part-20221221/“ target=“_blank“ rel=“follow“>here</a>. Equities are faring better on the day but the pound is finding itself offered with GBP/USD falling by 0.7% to 1.2100.</p><p style=““ class=“text-align-justify“>The pair is now running towards another test of its 200-day moving average (blue line) at 1.2083 and that remains a key line in the sand in terms of limiting any further downside momentum.</p><p style=““ class=“text-align-justify“>For buyers, they have to keep price above that level to stay in the game. Otherwise, a firm break below that will see sellers start to flex their muscles and target a push towards 1.2000 first in the next leg.</p>

This article was written by Justin Low at www.forexlive.com.

<ul><li>Prior -19</li></ul><p style=““ class=“text-align-justify“>UK retail sales unexpectedly picked up in December but the sales balance for January is seen falling back to -17. That points to expectations that consumer spending will slide again to start 2023 as cost-of-living pressures continue to permeate across the UK economy.</p>

This article was written by Justin Low at www.forexlive.com.

<p style=““ class=“text-align-justify“>It will now be a question of whether this is really where the BOJ draws the line or if they will eventually abandon their entire yield curve control policy. Kuroda might have said that they are not thinking about it yesterday but as soon as you blindside markets in the way that he did yesterday, there’s not much trust left lingering now.</p><p style=““ class=“text-align-justify“>The wider band for the 10-year JGB yields target makes sense from a market functioning perspective but if they wanted to address that, they could’ve done so much earlier and communicated it better surely. That will at least help the central bank retain some credibility in their commitment to the 2% inflation target.</p><p style=““ class=“text-align-justify“>Instead, after the fiasco yesterday, markets are not waiting for the BOJ anymore. 10-year yen swaps are on approach to 0.80% and the pressure will continue to mount for the BOJ now to defend their new red line.</p>

This article was written by Justin Low at www.forexlive.com.

<p style=““ class=“text-align-justify“>The Kremlin adds that the continued arms supplies by Western allies to Ukraine would lead to a „deepening“ of the ongoing conflict.</p><p style=““ class=“text-align-justify“>Even though markets have learned to zone out when reading the recent headlines involving Russia and Ukraine, this still remains a risk factor to be mindful of in trading next year – in case things do escalate further.</p>

This article was written by Justin Low at www.forexlive.com.

<p style=““ class=“text-align-justify“>The pair has been caught in a bit of a ping pong range for a while now, holding in between its 100 (red line) and 200-day (blue line) moving averages. After the softer US CPI data seven days ago, buyers were interested to run towards the latter but ultimately that failed as the dollar held its ground following a more hawkish Fed and a selloff in equities.</p><p style=““ class=“text-align-justify“>The BOJ surprise earlier today saw stocks come under further pressure and that saw AUD/USD fall to a low of 0.6629 as we got into the transition from Asia to Europe. But since then, a recovery in risk sentiment has helped to see the pair bounce as well to 0.6680 levels currently – with buyers holding a defense of the 100-day moving average at 0.6740 as well.</p><p style=““ class=“text-align-justify“>That is the key line in the sand for the pair as the downside pressure persists and as equities could potentially come under further pressure. The first litmus test will be how Wall Street takes to the BOJ policy tweak later today. Thereafter, it will be a case of how stocks can perform against the struggling technical outlook <a target=“_blank“ href=“https://www.forexlive.com/news/boj-policy-tweak-serves-up-more-pain-for-stocks-20221220/“ target=“_blank“ rel=“follow“>here</a>.</p><p style=““ class=“text-align-justify“>That will offer up some key drivers for both the aussie and dollar to work with before the turn of the year.</p><p style=““ class=“text-align-justify“>In looking at AUD/USD, a further drop below the 100-day moving average will then put into focus the 21 November low at 0.6584 before looking towards 0.6500 next.</p>

This article was written by Justin Low at www.forexlive.com.

<p style=““ class=“text-align-justify“>The push higher last week fell short at the final hurdle, with the dollar recovering well amid a selloff in equities. The push and pull is continuing this week with stocks falling yesterday and the dollar having firmed earlier amid a more risk-off transition from Asia after the BOJ tweaked its yield curve control policy.</p><p style=““ class=“text-align-justify“>But as we saw <a target=“_blank“ href=“https://www.forexlive.com/news/equities-recover-some-poise-in-european-trading-20221220/“ target=“_blank“ rel=“follow“>US futures pare losses</a>, the dollar has also lost ground on the session with EUR/USD now up 0.2% to 1.0625 on the day.</p><p style=““ class=“text-align-justify“>This sees price action keep just above the key trendline resistance (white line) at around 1.0580 as well as the 38.2 Fib retracement level of the swing lower since January last year, seen at 1.0610.</p><p style=““ class=“text-align-justify“>Those remain the two key levels to watch with buyers also putting up a modest defense of the 200-hour moving average, seen at 1.0594 currently.</p><p style=““ class=“text-align-justify“>As mentioned earlier in the week, any moves during this period will be tough to read amid thinner liquidity conditions and the best is to try and weigh up any changes in dollar sentiment to how risk trades are behaving – specifically stocks.</p><p style=““ class=“text-align-justify“>For now, equities have recovered some decent ground after the selling pressure hit in Asia but as we have seen over the past few sessions since late last week, Wall Street is a tough crowd to convince and the mood isn’t really helped by a struggling technical outlook as seen <a target=“_blank“ href=“https://www.forexlive.com/news/boj-policy-tweak-serves-up-more-pain-for-stocks-20221220/“ target=“_blank“ rel=“follow“>here</a>.</p>

This article was written by Justin Low at www.forexlive.com.

<p style=““ class=“text-align-justify“>A more dovish BOE and a more hawkish Fed helped to set the tone last week, with a selloff in equities also helping the dollar recover well after the softer US CPI data just seven days ago (felt like much longer now, no?). That resulted in failed breakout attempt to the topside with price falling back below the August lows at 1.2276-93 and the 50.0 Fib retracement level of the swing lower from last year, seen at 1.2306 roughly.</p><p style=““ class=“text-align-justify“>The retreat has resulted in a push back towards the 200-day moving average (blue line) earlier today, seen at 1.2088 currently. That came amid some firmness in the dollar in Asia after a risk retreat on the BOJ but now we are seeing the pair hold higher instead. The switch comes as the greenback eases amid <a target=“_blank“ href=“https://www.forexlive.com/news/equities-recover-some-poise-in-european-trading-20221220/“ target=“_blank“ rel=“follow“>a decent rebound</a> in the equities space ahead of US trading.</p><p style=““ class=“text-align-justify“>Going back to GBP/USD, dollar sentiment remains in the driver’s seat at the moment and more so as risk sentiment is very much in play again after the BOJ delivered a surprise to markets earlier today.</p><p style=““ class=“text-align-justify“>That said, topside resistance is still seen at the key levels above while downside is also more limited closer to the 200-day moving average pointed out as well.</p><p style=““ class=“text-align-justify“>As such, something has got to give eventually but for now, GBP/USD buyers are not out of it yet despite the fall off since last week. Sellers may only look towards 1.2000 again following a break below the 200-day moving average, so that is the line in the sand at the moment.</p>

This article was written by Justin Low at www.forexlive.com.