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High Volatility Continues in Markets, USD/JPY Upside Breakout

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Markets continues to engage very volatile trading, with US stocks and treasury yield staged strong rebounds overnight. Though, the moves are not totally followed by Mixed Asian markets. As for currencies, weakness in Australian and Canadian Dollars appear to be the more persistent near term theme. But Yen is not too far behind. Dollar is firm together with Sterling and while Euro and Swiss Franc are mixed.

Technically, USD/JPY’s break of 104.39 resistance is seen as another sign of bullish reversal. But it’s so far more about the weakness in Yen. EUR/USD is staying in range of 1.2052/2188. USD/CHF is also bounded in range below 0.8925. Dollar would need to break out of this range to confirm underlying buying momentum.

In Asia, currently, Nikkei is down -1.52%. Hong Kong HSI is up 0.35%. China Shanghai SSE is up 0.23%. Singapore Strait Times is down -0.05%. Japan 10-year JGB yield is up 0.0146 to 0.052. Overnight, DOW rose 0.99%. S&P 500 rose 0.98%. NASDAQ rose 0.50%. 10-year year yield rose 0.043 to 1.057.

BoJ Opinions: Downward pressure strong but moderate improving trend maintained

In the Summary of Opinions at BoJ’s January 20-21 meeting, it’s noted, “the impact of the reinstatement of the state of emergency for 11 prefectures… should be monitored carefully given that private consumption in these prefectures accounts for nearly 60 percent of Japan’s.”While downward pressure is “likely to be strong for the time being”, the economy is expected to “maintain its moderate improving trend”.

BoJ also noted, “this year, it is necessary to closely monitor the broad impact of political developments overseas, such as the change of government in the United States and the replacement of the Chancellor of Germany, on economic activities and financial conditions at home and abroad.”

On monetary policy, one member said, “in terms of yield curve control and purchases of assets such as exchange-traded funds (ETFs), it is crucial for the Bank to conduct them more flexibly in a prioritized manner while maintaining the current policy framework.”

Japan industrial production dropped -1.6% mom in Dec, but rebound expected in Jan

Japan industrial production dropped -1.6% mom in December, below expectation of -1.5% mom. Though, on the bright side, manufacturers surveyed by the Ministry of Economy, Trade and Industry (METI) expected output to rebound 8.9% in January and decline 0.3% in February. The government also maintained that industrial production was picking up.

Also from Japan, unemployment rate was unchanged at 2.9% in December, better than expectation of a tick up to 3.0%. Tokyo CPI core improved to -0.4% yoy in January, up from -0.9% yoy, above expectation of -0.6% yoy.

Elsewhere

Australia private sector credit rose 0.3% mom in December versus expectation of 0.2% mom. France GDP,, consumer spending, Germany unemployment, Swiss KOF will be released in European session. Later in the day, US will release personal income and spending, Chicago PMI and pending home sales.

USD/JPY Daily Outlook

Daily Pivots: (S1) 104.06; (P) 104.26; (R1) 104.45; More..

USD/JPY’s break of 104.39 resistance suggests resumption rise from 102.58 short term bottom. More importantly, current development argues that whole down trend from 111.71 has completed, on bullish convergence condition in daily MACD. Intraday bias stays on the upside for 38.2% retracement of 111.71 to 102.58 at 106.06. On the downside, however, break of 103.92 minor support will dampen this bullish view and turn bias neutral again.

In the bigger picture, USD/JPY is still staying in long term falling channel that started back in 118.65 (Dec. 2016). Hence, there is no clear indication of trend reversal yet. The down trend could still extend through 101.18 low. On the upside, break of 105.67 resistance is needed to be the first signal of medium term reversal. Otherwise, outlook will remain bearish.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:30 JPY Tokyo CPI Core Y/Y Jan -0.40% -0.60% -0.90%
23:30 JPY Unemployment Rate Dec 2.90% 3.00% 2.90%
23:50 JPY BoJ Summary of Opinions
23:50 JPY Industrial Production M/M Dec P -1.60% -1.50% -0.50%
23:50 JPY Industrial Production Y/Y Dec P -3.20% -3.90%
0:30 AUD Private Sector Credit M/M Dec 0.30% 0.20% 0.10%
0:30 AUD PPI Q/Q Q4 0.50% 0.40%
0:30 AUD PPI Y/Y Q4 -0.10% -0.40%
5:00 JPY Housing Starts Y/Y Dec -9.00% -4.90% -3.70%
5:00 JPY Consumer Confidence Index Jan 29.6 28.1 31.8
6:30 EUR France Consumer Spending M/M Dec 15.50% -18.90%
6:30 EUR GDP Q/Q Q4 P -3.90% 18.70%
7:00 EUR Germany Import Price Index M/M Dec 1.00% 0.50%
7:00 EUR Import Price Index Y/Y Dec -3.20% -3.80%
8:00 CHF KOF Leading Indicator Jan 101.5 104.3
8:55 EUR Germany Unemployment Change Dec 7K -37K
8:55 EUR Germany Unemployment Rate Dec 6.10% 6.10%
9:00 EUR Germany GDP Q/Q Q4 P 0.00% 8.50%
9:00 EUR Eurozone M3 Money Supply Y/Y Dec 11.20% 11.00%
13:30 CAD GDP M/M Nov 0.40%
13:30 CAD Industrial Product Price M/M Dec -0.60%
13:30 CAD Raw Material Price Index Dec 0.60%
13:30 USD Personal Income Dec 0.10% -1.10%
13:30 USD Personal Spending Dec -0.40% -0.40%
13:30 USD PCE Price Index M/M Dec 0%
13:30 USD PCE Price Index Y/Y Dec 1.10%
13:30 USD Core PCE Price Index M/M Dec 0.10% 0.00%
13:30 USD Core PCE Price Index Y/Y Dec 1.30% 1.40%
13:30 USD Employment Cost Index Q4 0.50% 0.50%
14:45 USD Chicago PMI Jan 58 58.7
15:00 USD Pending Home Sales M/M Dec -1.20% -2.60%
15:00 USD Michigan Consumer Sentiment Index Jan 79.2 79.2

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