IMF Joins the Party, BOJ Next

The global growth story got a big supporter Monday as the IMF upgraded its estimates for 2018 and 2019. The pound was the top performer Monday while the yen lagged. The Bank of Japan decision is next. The Premium Insights closed the EURUSD short at a 200-pip gain. 4 Premium trades remain in progress.

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The IMF ratcheted up its growth forecast to 3.9% from 3.7% for this year and next. It was widely anticipated but helps to underscore the upbeat theme that's rampaging through markets and giving a tremendous lift to global currencies.

Another spot that shows the optimism is the Citi economic surprise index. Every major country and region is positive with the US and Europe well high up the scale, except for Latin America trailing behind.

It's increasingly clear that global markets are entering some kind of euphoric phase and that the animal spirits are primed. Ashraf wrote last week about how yen-correlations have disconnected and that's something we're watching closely. At the moment, virtually all global markets are winners but at some point bonds will have to crack if this continues and that will make the FX landscape much more volatile.

One spot bonds are unlikely to crack is Japan as the BOJ attempts to stick to its annual 80 trillion yen in JGB purchases. Kuroda is likely to underscore the status quo in today's policy decision but there is a risk he signals a step away from bond buying or something that will allow Japanese yields to move higher. Recall, the  current objective is to keep the yield of the 10-year bond at or near 0%. It is now near 0.1%.

Watch carefully because even the slightest hint may be enough to send USD/JPY down to 110.00 and below. There is no set time but the headlines usually cross shortly after 0230 GMT.