The big story overnight was that the GPIF is to increase it’s allocation for domestic equities to 25 %, higher than the market previously expected. This led to a rally in the Nikkei and the index closed 4 % higher on the day. Meanwhile, S&P 500 and DAX futures gained 0.40 % so far.
In FX, the Nikkei rally boosted the USD/JPY and the pair hit a high of 107.40. AUD and NZD were the best performers vs the USD overnight, supported by the increased risk appetite. EUR/USD and GBP/USD consolidated in a 30-40 pips range with flows light.
Looking ahead, there is not much on the econ calendar, but traders will be watching the equity markets closely, especially the S&P 500 and DJIA. An extension of the rally in USD/JPY could lead to some decent volatility in the JPY crosses and boost other “risk currencies” as AUD and NZD as well.
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