JPY Lower as Risk-On Sentiment Returns, CAD Follows Oil Up

Overall, Fed Chair Jerome Powell’s renomination hearings seemed to be well received by the markets. US stocks closed broadly higher overnight, followed by rallies in Asian indexes. Yen and Dollar are both under some selling pressure today. On the other hand, commodity currencies are trading higher. In particular, Canadian Dollar is lifted by the rise in oil prices. European majors are mixed for the moment. Focus will turn to US consumer inflation next.

Technically, focus is now back on Yen crosses as risk-on sentiment returns. Despite breaching 82.42 resistance turned support, AUD/JPY recovered quickly, keeping itself inside near term rising channel. Break of 83.34 minor resistance will argue that rebound form 78.77 is ready to resume through 84.27. At the same time, we’ll also monitor if EUR/JPY and GBP/JPY would break through 131.59 and 157.74 temporary tops respectively, to confirm underlying weakness in Yen.

In Asia, at the time of writing, Nikkei is up 1.80%. Hong Kong HSI is up 2.22%. China Shanghai SSE is up 0.39%. Singapore Strait Times is up 0.03%. Japan 10-year JGB yield is down -0.0163 at 0.139. Overnight, DOW rose 0.51%. S&P 500 rose 0.92%. NASDAQ rose 1.41%. 10-year yield dropped -0.034 to 1.746.

S&P 500 closed higher after Fed Powell, staying in up trend

US stocks closed generally higher overnight after upbeat comments from Fed Chair Jerome Powell. In the nomination hearing before Senate Banking committee, he said that the current surge in Omicron infections will only have “short-lived” impacts. The economy is ready for some monetary stimulus withdrawal.

“Inflation is running very far above target. The economy no longer needs or wants the very accommodative policies we have had in place,” Powell said. And, “you need to focus on getting inflation under control because you’re not going to have maximum employment without price stability.” Though, he didn’t drop any hint on the timing of the first rate hike.

S&P 500 closed up 0.92% at 4713.07. SPX is so far still holding well inside medium term rising channel. 55 day EMA is also providing adequate support to maintain bullishness. Overall, it’s still on track to resume the long term up trend through 4818.62 high at a later stage, towards 5000 handle.

WTI crude oil resumes rally, targeting 83.8 next

WTI crude oil follows broad based risk-on sentiment and closed higher overnight. Rise from 62.90 resumed by breaking through 80.63 temporary top and hits as high as 81.79 so far. Current rally is expected to target 161.8% projection of 62.90 to 73.66 from 66.46 at 83.86, which is close to 85.92 high.

Rise from 62.90 is seen as the second leg of the consolidation pattern from 85.92 only. Hence, we’re not expecting a firm break of 85.92 yet. Instead, another fall should be seen before the consolidation completes. Break of 77.97 support will indicate rejection by 85.92 and target 73.66 resistance turned support first.

BoJ Kuroda: Consumer inflation likely to gradually accelerate

In a speech to regional branch managers, BoJ Governor Haruhiko Kuroda said “Japan’s economy is picking up as a trend, although it remains in a severe state due to the impact of the coronavirus pandemic.” The economy is expected to recover ahead as coronavirus impact eases.

On prices, Kuroda said consumer inflation is “likely to gradually accelerate reflecting rising energy prices.” Also, “consumer inflation likely to gradually accelerate as a trend.”

BoJ upgrades economic assessments on all nine regions

In the latest regional Economic Report, BoJ upgraded assessment on all nine regions. All reported that their respective economies “had been picking up or had shown signs of a pick-up, with the impact of the novel coronavirus (COVID-19) waning somewhat, primarily in consumption of services.”

Looking ahead

Eurozone industrial production will be released in European session. But main focus will be on US CPI.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.2534; (P) 1.2607; (R1) 1.2647; More…

With the strong break of 1.2619 support, USD/CAD’s should have completed a head and should top pattern (ls: 1.2852, h: 1.2963, rs: 1.2812). The development argues that rise from is finished at 1.2963, and possibly the whole pattern from 1.2005 too. Intraday bias is back on the downside for 1.2286 support first. Break there will target 1.2005 low. For now, risk will stay on the downside as long as 1.2812 resistance holds, in case of recovery.

In the bigger picture, focus will be on 38.2% retracement of 1.4667 (2020 high) to 1.2005 (2021 low) at 1.3022. Sustained break there should confirm that the down trend from 1.4667 has completed after defending 1.2061 long term cluster support. Further rise would then be seen towards 61.8% retracement at 1.3650. However, rejection by 1.3022 will maintain medium term bearishness. Break of 1.2005 will resume the down trend form 1.4667 and that carries larger bearish implications too.

Economic Indicators Update