In the next two days, the Bank of Japan will hold a monetary policy meeting, and the results will be announced on the 19th. The probability of a rate hike this time is extremely high, which is also the heaviest stone pressing on the market recently.
Last night, the market seemed to have shaken off some expectations in advance, but the real stimulus is yet to come. At 9:30 tonight, the U.S. CPI data will be released. With these two bombs detonating in succession, it would be unreasonable if the market doesn't react.
What is the underlying logic behind this:
1. U.S. CPI: If the inflation data is low, the market will wildly bet on the Federal Reserve cutting interest rates ahead of schedule, the dollar will weaken, and funds will flow out of the dollar to seek returns in other assets.
If the inflation data is high, expectations for rate cuts will cool, the dollar will strengthen, and funds will withdraw from risk assets and flow back to the dollar. Tonight's CPI will directly determine the direction of the funds' flow in the coming period.
2. In the past, too many institutions played the arbitrage game of “borrowing yen, exchanging for dollars, and buying globally” because the interest on yen is almost zero, making the borrowing cost very low. Once Japan raises interest rates, the cost of borrowing yen will immediately rise, and coupled with the high probability of yen appreciation, this classic strategy will become unattractive. Institutions will quickly sell off overseas assets to repay debts in yen, leading to a contraction in liquidity.
These two days will be the “super night” of the macro bureau, with increased market volatility and even more perplexing charting techniques emerging. In short, we will follow the market and the trend to open positions, with short positions as the main strategy. If one wants to go long during the process, they should participate with a small position, do not hold positions, and cut losses when necessary, achieving unity of heart and hand.
