YEN LOSES MOMENTUM AFTER BOJ DECISION

The Japanese yen fell to two-week lows against the dollar on Friday after the Bank of Japan (BOJ) kept monetary policy unchanged in a decision that was widely anticipated by the financial markets.

The BOJ voted to hold its benchmark interest rate at -0.1%, where it has stood since early 2017. Policymakers also voted to keep bond yields capped at zero percent and renewed their commitment to continue buying assets at a pace of 80 trillion yen per year.

Despite recent improvements to the Japanese economy, the central bank is expected to maintain its highly accommodative approach for the foreseeable future. Inflation remains well below the BOJ’s 2% goal. Gross domestic product (GDP) is gaining traction but also remains below central bank target.

In economic data, Eurozone consumer inflation was confirmed at 1.4% annually in May, data from Eurostat showed Friday. Core inflation, which strips away volatile goods such as food and energy, was up 1% year-over-year. That was slightly higher than the 0.9% expected.

The euro traded higher after the release, clawing back some of its post-FOMC declines. The common currency ran into volatility after repeated failure to cross the 1.13 level.

The US dollar index, an exchange-weighted average of the greenback against a basket of six peers, was down 0.1% at 97.32.

A stronger dollar has been partly to blame for the recent reversal in gold prices. Bullion has declined more than 1% this week and is on track for its second consecutive weekly decline.

USD/JPY

The USD/JPY exchange rate climbed 0.4% to 111.34 to trade near session highs. That was the pair’s highest level since 2 June. The pair traded below 109.00 on Wednesday ahead of the Federal Reserve’s interest rate statement. However, the outlook on the USD/JPY is somewhat mixed after a rocky few months. Traders can expect selling pressures to materialize at around 111.50 and above.

EUR/USD

The common currency has bounced back from the lows of the week but has seen its momentum deteriorate as market forces began to favour the dollar. The EUR/USD continues to trade below 1.12. Prices are down more than 100 pips from the Wednesday high as the dollar struggled for direction ahead of the Federal Reserve’s policy decision. The outlook on the EUR/USD remains neutral for now.

Gold

Bullion’s reversal intensified this week, as a technical correction combined with a rebounding dollar drove prices lower. Gold is currently trading at multi-week lows. The short-term outlook remains bearish, reflecting the volatile nature of the precious metals market this year. At the time of writing, gold prices are testing a critical resistance near the 61.8% Fibonacci level. Any movement below this level could expose the yellow metal to more intense selling pressure.