Morning Note: BOJ’s Rate Hike: How Will It Shape Markets?

How Will Markets React to BOJ's Likely Rate Hike?

The Bank of Japan begins its two-day policy meeting today with expectations that it is anticipated to take the policy rate up to 0.5% by Friday, marking the highest short-term borrowing costs in 16 years. However, the market may appear to have already fully priced in the rate hike. Moreover, BOJ Governor Ueda recently expressed that the central bank might think of raising rates further if the economy remains strong, while Deputy Governor Himino emphasised that it would be unusual for actual interest rates to remain negative once Japan moves beyond deflationary pressures.

From a technical analysis perspective, the overall trend of the USD/JPY currency pair remains bullish, as indicated by the higher highs and higher lows within the ascending channel. The price recently broke through the support zone and is currently retesting it. If the daily chart candle can close above this support zone, it would indicate a high possibility of the price continuing its bullish movement.

Bitcoin Expected to Remain in Consolidation Until FOMC Meeting

Since the Trump pump trade and the inauguration of the new U.S. president, Bitcoin has been stuck in a trading range between $100,000 and $110,000. This sideways consolidation is expected to hold until the FOMC meeting on January 28-29. Also, while the market had expected Bitcoin to enter a mode of price discovery and show strong bullish momentum following the crossing above $100,000, data from Glassnode indicates that this momentum has not been present since it crossed that threshold. 

From a technical analysis perspective, Bitcoin is currently trading within a consolidation zone ranging from $90,000 to $109,000, as indicated by the rectangular support and resistance levels. Upon closer examination of recent price movements, it is currently testing a previously broken structure. A downward breakout from this zone could lead to a continuation of bearish momentum, driving the price further downward. Alternatively, the zone may provide support, allowing the price to continue its bullish movement.

ECB Signals More Rate Cuts Ahead

European Central Bank (ECB) policymakers signalled strong support for additional interest rate cuts on Wednesday, suggesting that next week's reduction is nearly inevitable. More cuts are likely to follow regardless of the U.S. Federal Reserve's cautious stance. After four rate cuts in response to sluggish growth and declining inflation, the ECB is expected to maintain its aggressive approach in 2025. Traders have also heightened their expectations for further cuts this week after U.S. President Donald Trump refrained from imposing anticipated trade tariffs on the European Union.

From a technical analysis perspective, the overall trend of the EUR/USD currency pair remains bearish, as indicated by the lower highs and lower lows within the descending channel. The price recently retested the previous resistance zone and was rejected with minimal bearish momentum. If the price fails to break through this resistance zone upwards, it is highly possible to continue the bearish momentum, further driving the price downwards.

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.