Yen Mildly Lower as Asia Rebounds, Canadian Dollar in Weak Recovery

Yen trades mildly lower today, as Asian markets recover despite the steep fall in US overnight. Swiss Franc and Dollar are also soft. On the other hand, commodity currencies are all recovering mildly, but momentum is weak. Overall, the forex markets are still hesitating to break out from recent range, with the exception of Canadian Dollar. The Loonie will now look ahead to retail sales for the next movement.

Technically, we’re continue to wait for breakouts in some Dollar and Yen pairs patiently. The levels to watch include 1.1185/1382 in EUR/USD, 1.3158/3373 in GBP/USD, 0.9156/9293 in USD/CHF, 127.36/129.82 in EUR/JPY and 148.94/152.60 in GBP/JPY.

In Asia, Nikkei closed up 2.08%. Hong Kong HSI is up 1.03%. China Shanghai SSE is up 0.88%. Singapore Strait Times is up 0.47%. Japan 10-year JGB yield is up 0.0157 at 0.055. Overnight, DOW dropped -1.23%. S&P 500 dropped -1.14%. NASDAQ dropped -1.24%. 10-year yield rose 0.017 to 1.419.

Japan government: economy shows movements of picking up

In the latest Monthly Economic Report, Japan’s Cabinet Office upgraded economic assessment for the first time in 17 months. It said, “the Japanese economy shows movements of picking up recently as the severe situation due to the Novel Coronavirus is gradually easing.” Back in November, it said the economy “continues to show weakness in picking up”.

Private consumption is “picking up”, dropping “while some weakness remains”. However, business investments “appears to be pausing for picking up”. Exports are “almost flat”. Industrial production continues to appear to be “pausing for picking up”. Corporate profits are “picking up”. Employment situations shows “picking up in some components”, comparing to November’s “shows steady movement”. Consumer prices continues to “show steady movements.

RBA minutes laid three options on QE, patient on rates

In the minutes of December 21 meeting, RBA reiterated that decision about the bond purchases program will be made in February. The criteria to consider include “progress towards the Board’s goals for employment and inflation, the actions of other central banks and the functioning of the Australian bond market.” Information include December CPI, December and January labor market data, and overall impact of Omicron.

Three possible options were also discussed.

• The first option was to reduce the pace of purchases from mid February with an expectation of a likely end point in May 2022. This option is consistent with November forecasts for employment and inflation.
• The second option was to reduce the pace of purchases and review it again in May 2022. This option is stronger if progress was slower than expected.
• The third option was to cease purchases altogether in mid February. In case of better-than-expected progress, the third option would become more appropriate.

Regarding interest rate, “the Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range.” And, “this is likely to take some time and the Board is prepared to be patient.”

AUD/CAD in rebound, but no major bottoming yet

AUD/CAD is a pair worth watching today, after having sluggish response to RBA minutes. But Canada retail sales featured today could trigger some volatility. There is prospect of major bottoming at 0.8969 considering bullish convergence condition in daily MACD. Also, it’s so far staying above 55 day EMA, which is a positive sign.

However, AUD/CAD will need to firmly take out 0.9335 resistance to indicate completion of the fall from 0.9991 high. Other wise, another fall would remain mildly in favor. On the downside, break of 0.9087 minor support will bring deeper fall to retest 0.8969 low. Break will resume the fall from 0.9991 to 61.8% retracement of 0.8058 to 0.9991 at 0.8796.

Looking ahead

Germany Gfk consumer confidence, Swiss trade balance and UK public sector net borrowing will be released in European session. Canada retail sales and US current account will be featured later in the day.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.2899; (P) 1.2931; (R1) 1.2978; More…

Intraday bias in USD/CAD remains on the upside at this point. Current rise from 1.2286 should target 1.3022 key medium term fibonacci level. Sustained break of 1.3022 will carry larger bullish implications. Next target will be 100% projection of 1.2005 to 1.2947 from 1.2286 at 1.3228. ON the downside, break of 1.2762 support is needed to indicate short term topping. Otherwise, outlook will stay bullish in case of retreat.

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. On the downside, however, break of 1.2286 will turn focus back to 1.2005 low again.

Economic Indicators Update