US Dollar slides as BoJ preps markets for end of decades of negative rates

• The US Dollar sinks over 1% against the Japanese Yen.
• Traders brace for jobless claims and Challenger Job Cuts data. 
• The US Dollar Index could close above 104.00, on track to return to October levels.

The US Dollar (USD) is facing a blow from the Japanese Yen after Bank of Japan’s (BoJ) Chairman Kazuo Ueda signalled to the markets that a change in monetary policy is coming. The Bank of Japan has kept rates negative for multiple decades, though an end is appearing to be near. The result is that the Japanese Yen is up over 1.25% against the Greenback, which tips the US Dollar Index (DXY) in its turn in the red and snaps this week’s winning streak. 

On the economic front, traders can further assess the healthiness of the US jobs market ahead of the actual US Nonfarm Payrolls Jobs report on Friday. The weekly Jobless Claims will be getting the most focus, together with the Challenger Job Cuts. Should a sudden rise in Job Cuts be noticed, that could mean that the recession is underway. 

Daily digest: BoJ surprises markets

• Bank of Japan’s Chairman Kazuo Ueda has hit a nerve in markets in Asian trading hours, after alluding that a change in monetary policy might be at hand in the next central bank rate decision on December 16th. Analysts are expecting that the BoJ might end its decade-long trend of negative rates. 
• Around 12:30 GMT the Challenger Job Cuts will be released. Previous was for -36,836. A substantial uptick could be bad for the Greenback as bets for a recession or quicker cuts from the US Federal Reserve will trigger US Dollar weakness.
• Near 13:30 GMT the weekly Jobless Claims are due to be released:
• Initial Claims are expected to rise from 218,000 to 222,000.
• Continuing Jobless Claims are expected to fall from 1,927,000 to 1,910,000.
• Around 15:00 GMT the lighter Wholesale Inventories are due to be released for October. Previous was -0.2% with again -0.2% expected.
•  Consumer Credit Change for October will be released near 20:00 GMT with a previous outstanding credit debt of $9.06 billion. The forecast is for a decrease to $9 billion. 
• Equities are dropping like a stone after the surprise comment from the BoJ. Both the Nikkei and the Topix, leading Japan indices, have closed over 1% in the red. European markets are marginally in the red with US futures flat ahead of the US opening bell.  
• The CME Group’s FedWatch Tool shows that markets are pricing in a 97.7% chance that the Federal Reserve will keep interest rates unchanged at its meeting next week.  
• The benchmark 10-year US Treasury Note drops to 4.16%. Yields in Europe, however, are falling even quicker and widening the gap with US Yields.

US Dollar Index technical analysis: Not according to plan

The US Dollar retreats firmly this Thursday in early trading, after the BoJ rattled markets with a surprise comment that might mean the end of negative rates on the island. The US Dollar drops over 1% against the Japanese Yen and in its turn is dragging the US Dollar Index (DXY) to the downside. This decline ahead of the US Jobs Report could be the window of opportunity US Dollar bulls are looking for to add to US Dollar positions. 

The DXY printed a new third consecutive high on Wednesday, which is what bulls are looking for as confirmation of a winning streak. The DXY could still make it further up, should employment data trigger rising US yields again. A two-tiered pattern of a daily close lower followed by an opening higher would quickly see the DXY back above 104.28, with the 55-day and 100-day Simple Moving Averages (SMA) turned over to support levels. 

To the downside, the 200-day SMA should act as support and not allow the DXY to drop below 103.56. If it fails, the lows of June make sense to look for some support near 101.92. Should more events take place that initiate further declines in US rates, expect to see a near-full unwind of the 2023 summer rally, heading to 100.82, followed by 100.00 and 99.41.