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Yen Post-BoJ Collapse Slows, Brexit Bleeds Into Global Risk Trends

Yen Post-BoJ Collapse Slows, Brexit Bleeds Into Global Risk Trends

John Kicklighter, Chief Strategist

Talking Points:

  • Brexit volatility continues with the BoE's warning and temporary campaign suspension after tragic MP's murder
  • Risk trend influence has increased, intensifying correlation across the various asset classes
  • USD/JPY and the Yen crosses plunged after the BoJ announced a hold on policy stoked fears of a limit to support

See how retail traders are positioning GBPUSD, the majors and risk assets using the SSI readings on DailyFX's sentiment page.

The volatility experienced by the Brexit-plagued Pound seems to be spilling over to the broader markets. This is not a productive rise in activity that can feed trend but rather erratic and explosive movement that undermines strategy and well thought-out trades. GBPUSD and the Sterling crosses were seeing the now-familiar extreme moves and intraday reversals. The Bank of England reiterated its warning for the risks in a Brexit 'Leave' and later the tragic murder of MP Jo Cox encouraged both camps to suspend campaigning out of respect for her passing.

Global markets follow a similar path as the Pound - seemingly treating the currency as an in-touch barometer for sentiment. With the rebound in the Sterling; equities recovered, Gold's surge above 1,300 was sharply reversed and even the Yen crosses regained traction. USD/JPY and its Yen counterparts suffered a dramatic tumble this past session following the BoJ rate decision. The central bank didn't move on policy which drew concern that the group wouldn't not prop up speculative interests that are increasingly betting on a rebound. The Japanese authority - like the SNB, ECB and many more - may be holding back on further efforts until the Brexit risk can be evaluated.

If the UK were to vote 'Leave', the level of full financial blowback the event represents is hard to grasp as there are so many variables and connections. However, the risk of serious financial strain is very real and clearly on policy officials minds. Individual efforts to fight the risk impact on their own shores would have very limited impact. A coordinated response on an event like this is likely; but this would carry with it a distinct evaluation of the effectiveness of global monetary policy for answering the market's and economy's troubles. That is a judgement that officials probably never want to face. We discuss the risky market conditions and appropriate trading approach in today's Trading Video.

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