<p style=““ class=“text-align-justify“>And that is despite a surging recovery in the currency over the past two months, with USD/CNY having 7.30 at the peak in late October to early November. The over 8% decline will be the worst performance by the Chinese onshore yuan against the dollar since 1994 when China unified market and official rates.</p><p style=““ class=“text-align-justify“>I’ve argued plenty of times during the course of the year that if China is allowing its currency to weaken, that is a major tailwind signal for the dollar to extend higher – as we saw during the August period <a target=“_blank“ href=“https://www.forexlive.com/news/a-key-trigger-for-the-next-leg-higher-in-the-dollar-20220819/“ target=“_blank“ rel=“follow“>here</a>.</p><p style=““ class=“text-align-justify“>As such, this will continue to be a key consideration for the greenback going into next year as the Fed tightening cycle will be called into question and as China has moved away from its zero-Covid policy.</p>

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

<p style=““ class=“text-align-justify“>At some point in the past five to six years, it was a wonder as to how the Swiss central bank will ever be able to escape negative rates and spur inflation in the economy – much like Japan. Yet, here we are now where policymakers have not only moved on from that but are now actively having to step into the market to strengthen the Swiss franc instead.</p><p style=““ class=“text-align-justify“>That last line is definitely something I’d never thought to be typing, even at the start of the pandemic.</p><p style=““ class=“text-align-justify“>The latest <a target=“_blank“ href=“https://data.snb.ch/en/topics/snb/cube/snbfxtr“ target=“_blank“ rel=“nofollow“>balance sheet data</a> from the SNB shows that the central bank sold foreign currencies worth CHF 739 million in Q3 2022, exemplifying how their focus has shifted from curbing and smoothing out the appreciation in the franc currency over the years to fighting inflation this year. That comes of course amid their change in policy stance as well.</p><p style=““ class=“text-align-justify“>How the times have changed.</p>

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

<ul><li>CPI +0.3% m/m</li><li>Prior -0.1%</li><li>HICP +5.6% vs +6.0% y/y expected</li><li>Prior +6.7%</li><li>HICP +0.1% m/m</li><li>Prior -0.3%</li></ul><p style=““ class=“text-align-justify“>That’s now five months running that annual inflation in Spain has been on the decline, since peaking at 10.8% in July. The drop is surely still largely to do with falling energy prices, with <a target=“_blank“ href=“https://www.forexlive.com/news/milder-weather-has-helped-with-europes-plight-so-far-this-winter-20221228/“ target=“_blank“ rel=“follow“>milder weather conditions</a> so far this winter being a key reason for that in Europe. If there is something to take away from this report, it is that other countries in the euro area are likely to see a similar trend.</p>

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

<p style=““ class=“text-align-justify“>Xie is said to have expressed disappointment with the result of the digital yuan trial in select provinces and cities, noting that „the cumulative circulation of the digital currency in the two years of trial has been only ¥100 billion“. Adding that the usage has been „low and highly inactive“.</p><p style=““ class=“text-align-justify“>Despite China being among the leaders in developing central bank digital currencies, Xie says that the digital yuan business had no synergistic effect and no commercial benefits in banks‘ business.</p><p style=““ class=“text-align-justify“>That’s at least some insight into the experiment so far and is likely a similar view held among central bank officials as well, considering that there has been very little update on the test run. Xie also goes on to say that „cash, bank cards and China’s third-party payment mechanisms have formed a payment market structure that has met needs for daily consumption“ and that „changing it is difficult“.</p>

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

<p style=““ class=“text-align-justify“>It is year-end trading and it isn’t the best of times to scrutinise any market moves amid thinner liquidity conditions. The dollar is slightly softer on the balance of things today, with USD/JPY leading the downside as sellers look to snap a run of four straight days of gains for the pair.</p><p style=““ class=“text-align-justify“>In the bigger picture, the technical predicament points to a consolidation of sorts after the plunge last Tuesday following the surprise BOJ policy tweak.</p><p style=““ class=“text-align-justify“>The daily chart shows a bounce off support from the 16 June low at 131.49 but sellers are still sitting comfortably on a break under 135.00 as well as the 200-day moving average (blue line) for now.</p><p style=““ class=“text-align-justify“>In the near-term, price action is holding above the confluence of its 100 and 200-hour moving averages, seen at 133.26-32 currently. But even as buyers hold near-term control, any upside extension remains wanting unless they can breach the resistance levels noted above.</p><p style=““ class=“text-align-justify“>As for what’s next for the pair, I shared some thoughts last week:</p><p style=““ class=“text-align-justify“>“But in the bigger picture, what’s next for USD/JPY? </p><p style=““ class=“text-align-justify“>I would argue that a lot of it will come down to any chatter about a further pivot by the BOJ. Adding to that is if market pricing would look to go against any pushback from policymakers that they are not looking to change their stance. </p><p style=““ class=“text-align-justify“>I mean, one can reasonably expect policymakers to keep defending their current ultra easy policy but at the end of the day, actions speak louder than words. And in turn, their credibility is most certainly at stake in 2023. </p><p style=““ class=“text-align-justify“>If there is even the slightest indication of the BOJ turning the corner and angling its crosshair towards fighting inflation, USD/JPY may very well look towards 100 or 110 again in a jiffy.“</p>

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

<p style=““ class=“text-align-justify“>The over 1% drop in the S&P 500 yesterday saw a daily close below its 50.0 Fib retracement level of the swing higher from October, seen at 3,796. That has been a level limiting further downside in the past week, before we headed into the Christmas break.</p><p style=““ class=“text-align-justify“>But as we move towards the turn of the year, sellers are taking charge and pushing the agenda, in search of the next downside leg for stocks.</p><p style=““ class=“text-align-justify“>The double-top pattern around 4,100 has a downside target of around 3,760 and that will be the next level to be mindful of before we look towards the November low at 3,698 for the S&P 500 index.</p><p style=““ class=“text-align-justify“>As much as stocks had been hopeful for a major rebound on the back of a Fed pivot of sorts, we’re still not quite at the point where the Fed and other major central banks are resigned to putting a complete stop to their respective tightening cycles.</p><p style=““ class=“text-align-justify“>Much like how the dollar has a few key considerations to take into account <a target=“_blank“ href=“https://www.forexlive.com/news/two-reasons-why-you-should-not-to-discount-the-dollar-20221223/“ target=“_blank“ rel=“follow“>here</a>, it is the same story for equities as well.</p><p style=““ class=“text-align-justify“>The inflation outlook remains pivotal but as mentioned <a target=“_blank“ href=“https://www.forexlive.com/news/the-technical-story-is-the-one-to-watch-for-stocks-ahead-of-the-turn-of-the-year-20221226/“ target=“_blank“ rel=“follow“>here</a> previously, do not brush aside the implications of the technical picture that is playing out at the moment – as also seen above.</p>

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

<p>The Bank of Japan buys Japanese Government Bonds (JGBs) as part of its <a target=“_blank“ href=“https://www.forexlive.com/terms/y/yield/“ target=“_blank“ id=“bc27d1fa-0b41-4192-ac3a-48794fd4ff1e_1″ class=“terms__main-term“>yield</a> curve control (YCC) program to maintain loose monetary policy. </p><p>The BOJ buys JGBs in scheduled and unscheduled operations. Unscheduled buys are sometimes referred to as ‚emergency‘ bond buys. The Bank conducted an unscheduled operation on Wednesday and did so again Thursday. After buying on Thursday morning (Japan time) the BOJ bought more later in the session. </p><p>Thus, two ‚emergency‘ bond buys today:</p><ul><li>offered to buy unlimited amounts of two- and five-year notes at a fixed yield</li><li>and also 600 billion yen of one-to-10 year bonds</li><li>on top of a daily offer to buy 10-year debt at 0.5% (the new top of its current yield target)</li></ul><p>Despite announcing the widening of the 10 year JGB band to +/- 0.5% the bank finds itself forced to continue to buy to defend yields. The widening of the band has encouraged traders to speculate that the Bank will be forced to lift the cap further or scrap it completely.</p><p>USD/<a target=“_blank“ href=“https://www.forexlive.com/terms/j/jpy/“ target=“_blank“ id=“9ad55131-b07a-4ccb-b844-eed2194cf434_1″ class=“terms__secondary-term“>JPY</a> update:</p><p>—</p><p>As a catch-up with the People’s Bank of China today:</p><ul><li> sets USD/ CNY reference rate for today at 6.9793 </li><li>injected 205bn yuan of 7 day reverse repos, with 4 bn yuan maturing today, for a net injection of 201bn yuan in open market operations</li></ul><p>While in China, stocks dropped on the session:</p>

This article was written by Eamonn Sheridan at www.forexlive.com.

<p>JP Morgan EUR/CHF outlook for the upcoming year:</p><ul><li>Stay short EUR/CHF in cash</li></ul><p>JPM are targeting:</p><ul><li>0.95 in Q1 2023</li><li>0.92 by the end of 2023</li></ul><p>JPM citing:</p><ul><li>CHF’s anti-cyclical properties and the SNB’s bullish policy regime shift for the currency point to further downside for EUR/CHF into 2023</li></ul><ul><li>The CHF remains one of the best proxies of global growth, serving as a reliable hedge against lingering downside risks to the cycle next year</li><li>Real rate differentials and Switzerland’s sustained current account surplus remain bullish CHF tailwinds, particularly vs. EUR. </li><li>Deleveraging flows should also be CHF-supportive. </li></ul>

This article was written by Eamonn Sheridan at www.forexlive.com.

<ul><li>Prior -57.5</li></ul><p style=““ class=“text-align-justify“>CFA notes that despite financial analysts being now somewhat less pessimistic about the Swiss economy, the only real improvement in the outlook that they are expecting to see – if at all – stems from China.</p>

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

<p style=““ class=“text-align-justify“>Just to provide a bit of context, Ito is also touted to be a potential successor to Kuroda for the top job at the BOJ, and he has previously worked closely with Kuroda together at Japan’s finance ministry and was also Kuroda’s inspiration for adopting the 2% inflation target in Japan. In an opinion column, he acknowledged the central bank’s efforts to fix market functionality after having tweaked its yield curve control policy last week:</p><p style=““ class=“text-align-justify“>“Kuroda is correct on this technical point. But the tweak to the YCC could still be the first step toward monetary-policy normalization. If so, it should be heralded as a sign that the BOJ has had some success with its decade-long ultra-easy monetary policy. Kuroda’s Bazooka, as it is colloquially known, may have hit its mark.“</p><p style=““ class=“text-align-justify“>Ito goes on to argue that „next year’s ’spring offensive‘ – annual pay negotiations – is expected to bring large wage hikes, partly to compensate for the higher inflation rate in 2022“. Adding that such a scenario would „be an ideal initial condition for the BOJ to start hitting its inflation target on a more sustainable basis“ and „bring a happy ending to Japan’s decade-old ultra-easy monetary policy“.</p><p style=““ class=“text-align-justify“>The full post can be found <a target=“_blank“ href=“https://www.project-syndicate.org/commentary/bank-of-japan-yield-cap-could-be-first-step-to-normalization-by-takatoshi-ito-2022-12″ target=“_blank“ rel=“nofollow“>here</a>.</p>

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