Risk Aversion Eased ahead of Holiday, But Yen Remains Strongest

Market overviews

Yen remains the strongest one for today even though risk aversion eased a bit ahead of long holiday weekend. Dollar is following as the second strongest, reversing a lot of post FOMC losses against Euro and Swiss Franc. Commodity currencies remain generally weak. But today, it’s Canadian Dollar that’s leading the way down. Stronger than expected Canada GDP data provided little help. The Loonie follows WTI crude oil lower, as the latter is now risking 45 handle.

Technically, EUR/JPY is showing sign of downside acceleration and should have a take on 126.63 support soon. But for now, USD/JPY is holding on to 110.75 key fibonacci level and consolidates in tight range around 111.20. The development has actually dragged down EUR/USD. But EUR/USD is holding above 1.1364 minor support, so further rise remains mildly in favor.

In other markets, in Europe at the time of writing, FTSE is down -0.05%, DAX is up 0.16%, CAC is down -0.06%. German 10 year yield is up 0.0162 at 0.249. Italian 10 year yield is up 0.0456 at 2.785. Earlier in Asia, Nikkei dropped -1.11%, Hong Kong HSI rose 0.51%, China Shanghai SSE dropped -0.79%, Singapore Strait Times dropped -0.15%. Japan 10 year JGB yield rose 0.0085 to 0.039.

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US Q3 GDP revised down to 3.4%, ex-transport durable orders contracted

Released from US, Q3 GDP growth was finalized at 3.4% annualized, revised down from 3.5%. GDP price index was revised up from 1.7% to 1.8%. Durable goods orders rose 0.8% in November, much lower than expectation of 1.8%. Ex-transport orders even dropped -0.3% versus expectation of 0.3%.

On the other hand, Canada GDP rose 0.3% mom, in October, above expectation of 0.2% mom. Headline retail sales rose 0.3% mom, below expectation of 0.6% mom. Ex-auto sales rose 0.0%, below expectation of 0.3%.

UK Q3 GDP finalized at 0.6%, services the strongest contributor

UK Q3 GDP growth was finalized at 0.6% qoq, unrevised. Annually, GDP grew 1.5% yoy, revised up by 0.1%. ONS noted that “services remained the strongest contributor to growth in the output approach to GDP in Quarter 3 2018, with growth easing slightly from the previous quarter; construction and manufacturing also contributed positively to growth.”

At the same time, ONS also said “In comparison with the same quarter a year ago, the UK economy has grown by an unrevised 1.5%. This is a slight pickup from previous quarters in the year, although the longer-term picture remains one of relatively subdued growth compared with historic standards”

Also from UK, current account deficit widened to GBP -26.5B in Q3, larger than expectation of GBP -22.2B. Public sector net borrowing rose to GBP 6.3B in November, below expectation of GBP 7.0B

From German, Gfk consumer sentiment was unchanged at 10.4 in January.

Japan cabinet approved record fiscal 2019 budget

Japan Prime Minister Shinzo Abe’s Cabinet approved budget for fiscal 2019. The general account budget would rise for the seventh straight years, to JPY 101.5T, comparing to current fiscal year’s initial estimate of JPY 97.7T.

Of the JPY 101.5T, around JPY 2T will be spent specifically to ease the impact from the planned sales tax hike in October 2019, from 8% to 10%. Measures will include shopping vouchers to help low income households.

However, stimulus measures will altogether hit JPY 6.5T, far exceeding the estimated increase in sale tax revenue. Some economists noted that Abe has now set the precedence that rise in tax would actually be delaying fiscal reform.

Nevertheless, Finance Minister Taro Aso emphasized that “we were able to manage both needs of economic revival and fiscal consolidation with this budget.”

Released from Japan, national CPI core slowed to 0.9% yoy in November, down from 1.0% yoy and missed expectation of 1.0% yoy.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 110.53; (P) 111.57; (R1) 112.33; More..

No change in USD/JPY’s outlook. Price actions from 114.54 are viewed as a consolidation pattern. We’d continue to expect downside to be contained by 38.2% retracement of 104.62 to 114.54 at 110.75 to bring rebound. On the upside, break of 111.84 minor resistance will turn bias back to the upside for rebound to 4 hour 55 EMA (now at 112.46). However, firm break of 110.75 will dampen our view and target 61.8% retracement at 108.40.

In the bigger picture, corrective fall from 118.65 (2016 high) should have completed with three waves down to 104.62. Decisive break of 114.73 resistance will likely resume whole rally from 98.97 (2016 low) to 100% projection of 98.97 to 118.65 from 104.62 at 124.30, which is reasonably close to 125.85 (2015 high). This will stay as the preferred case as long as 109.76 support holds. However, decisive break of 109.76 will dampen this bullish view and turns outlook mixed again.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:30 JPY National CPI Core Y/Y Nov 0.90% 1.00% 1.00%
07:00 EUR German GfK Consumer Confidence Jan 10.4 10.3 10.4
09:30 GBP Public Sector Net Borrowing Nov 6.3B 7.0B 8.0B 5.6B
09:30 GBP Current Account Balance (GBP) Q3 -26.5B -22.2B -20.3B -20.0B
09:30 GBP GDP Q/Q Q3 F 0.60% 0.60% 0.60%
09:30 GBP Total Business Investment Q/Q Q3 F -1.10% -1.20% -1.20%
13:30 CAD Retail Sales M/M Oct 0.30% 0.60% 0.20% 0.10%
13:30 CAD Retail Sales Ex Auto M/M Oct 0.00% 0.30% 0.10%
13:30 CAD GDP M/M Oct 0.30% 0.20% -0.10%
13:30 USD GDP Annualized Q/Q Q3 T 3.40% 3.50% 3.50%
13:30 USD GDP Price Index Q3 T 1.80% 1.70% 1.70%
13:30 USD Durable Goods Orders Nov P 0.80% 1.80% -4.30%
13:30 USD Durables Ex Transportation Nov P -0.30% 0.30% 0.20%
15:00 EUR Eurozone Consumer Confidence Dec A -4 -4
15:00 CAD BoC Business Outlook Survey
15:00 USD Personal Income Nov 0.30% 0.50%
15:00 USD Personal Spending Nov 0.30% 0.60%
15:00 USD PCE Deflator M/M Nov 0.20%
15:00 USD PCE Deflator Y/Y Nov 2.00%
15:00 USD PCE Core M/M Nov 0.20% 0.10%
15:00 USD PCE Core Y/Y Nov 1.90% 1.80%
15:00 USD U. of Mich. Sentiment Dec F 97.6 97.5