Yen Trying to Rally as 10-Yr JGB Yield Turns Positive

Market overviews

The forex markets are relatively quiet today, with little reactions to the record run in US stock markets overnight. Yen is indeed to trying to rally risk appetite markets, drawing support from 10-year JGB yield which turns positive. Swiss Franc is generally firm as this week’s rally is maintaining mild momentum. Sterling remains soft as this week’s correction is set to extend further. For the week, the Pound is the weakest one, followed by Euro and then Dollar. Swiss is the strongest, followed by Canadian.

Technically, the strength in Swiss Franc is worth a note. USD/CHF is on track to extend the fall from 1.0023 to retest 0.9659 low. With break of 1.0910 support yesterday, EUR/CHF is also heading back to 1.0811 low. The developments are keeping EUR/USD is very tight range. But near term outlook in EUR/USD stays cautiously bullish as the pair is kept well above 1.1039 support.

In Asia, currently, Nikkei is down -0.06%. Hong Kong HSI is up 0.30%. China Shanghai SSE is up 0.03%. Singapore Strait Times is down -0.02%. Japan 10-year JGB yield is up 0.0097 at 0.005, finally turned positive. Overnight, DOW rose 0.49%. S&P 500 rose 0.45%. NASDAQ rose 0.67%. All were new record highs. 10-year yield dropped -0.016 to 1.908.

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US House passed USMCA by 385-41 votes

In the US, House passed the legislation to implement the USMCA by 385-41 votes yesterday, with 38 Democrats, two Republicans and one independent lawmakers voted no. At this point, it’s unsure when Senate will take it up. Senate Republican leader Mitch McConnell said before that a USMCA vote would likely follow the impeachment trial on President Donald Trump, possibly in January.

Mexican Foreign Minister Marcelo Ebrard said “We’re going forward. Good news” after the passage. He added that the new will start  new phase of investment and growth for Mexico, ending a period of uncertainty. Canadian Prime Minister Justin Trudeau said Canada’s Parliament would approve USMCA “as quickly as we can.” But Parliament is not scheduled to return to Ottawa before Jan. 27.

Japan cabinet approved record budget for next fiscal year

Japanese Primes Minister Shinzo Abe’s cabinet approved a record JPY 102.7T general account budget today, for the fiscal year beginning April 2020. That marks a 1.2% rise from the current fiscal year. There will be JPY 61.7T in general spending, with JPY 36T on social security. JPY 23.4T will be used for debt servicing. JPY 15.8T will be transferred to regional and local governments.

Meanwhile, the government projected to have JPY 63.5T in tax revenue, JPY 32.6T in revenue from bond issuance, and JPY 6.6T income from others sources. Also, the government doesn’t project a balanced budget until fiscal 2027.

Japan national CPI core ticked up to 0.5%

Japan national CPI core (ex-fresh food), accelerated to 0.5% yoy in November, ticked up from 0.4% yoy. However, taking away the effect of sales tax hike, started in October, core inflation came in at just 0.2% yoy. All item CPI rose from 0.2% yoy to 0.5% yoy. CPI core-core (ex-fresh food and energy) rose from 0.7% yoy to 0.8% yoy.

While it’s the 35th straight month of core price increases, it remained well below BoJ’s 2% target. An official from  the Ministry of Internal Affairs and Communications said, “although at a slower pace, the index continues to rise, so there is no change in our view that the prices are rising moderately.”

UK Gfk consumer confidence rose to -11, robust increase in economic confidence

UK Gfk Consumer Confidence rose to -11 in December, up from -14. In particular, index for General Economic Situation over the last 12 months improved 3 pts to -31. Index for General Economic Situation over the next 12 months improved 7 pts to -27.

Joe Staton, Client Strategy Director at GfK, said: “We haven’t seen such a robust increase in confidence about our economic future since the summer of 2016. Despite official warning signs about the flat-lining of Britain’s economy, we know that record high employment and below target levels of inflation are helping to boost consumers’ expectations for the year ahead.

Looking ahead

Germany will release Gfk consumer confidence in European session. France will release consumer spending and Eurozone will release current account. UK will also release Q3 GDP final.

Main focus will be Canadian and US data featured later in the day. Canada will release retail sales and new housing price index. US will release personal income and spending, with core PCE inflation.

USD/JPY Daily Outlook

Daily Pivots: (S1) 109.13; (P) 109.41; (R1) 109.63; More..

USD/JPY drops slightly after failing to break through 109.72 resistance. Deeper fall might be seen as consolidation from 109.72 extends. But after all, as long as 108.27 support holds, outlook remains bullish for further rally. On the upside, break of 109.72 will resume the rise from 104.45 for 100% projection of 104.45 to 108.47 from 106.48 at 110.50. However, sustained break of 108.27 support will indicate near term reversal and turn outlook bearish.

In the bigger picture, there is no confirmation of medium term reversal. Corrective decline from 118.65 (Dec. 2016) could still extend lower. But in that case, we’d expect strong support above 98.97 (2016 low) to contain downside to bring rebound. Meanwhile, on the upside, break of 112.40 key resistance will be a strong sign of start of medium term up trend.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:30 JPY National CPI Core Y/Y Nov 0.50% 0.50% 0.40%
0:01 GBP GfK Consumer Confidence Dec -11 -14 -14
7:00 EUR Germany Gfk Consumer Confidence Jan 9.7 9.7
7:45 EUR France Consumer Spending M/M Nov 0.30% 0.20%
9:00 EUR Current Account (EUR) Oct 23.6B 28.2B
9:30 GBP GDP Q/Q Q3 F 0.30% 0.30%
9:30 GBP Current Account (GBP) Q3 -15.5B -25.2B
9:30 GBP Public Sector Net Borrowing (GBP) Nov 5.2B 10.5B
12:00 GBP BoE Quarterly Bulletin Q4
13:30 CAD New Housing Price Index M/M Oct 0.00% 0.20%
13:30 CAD Retail Sales M/M Oct 0.10% -0.10%
13:30 CAD Retail Sales ex Autos M/M Oct 0.20% 0.20%
13:30 USD GDP Annualized Q3 F 2.10% 2.10%
13:30 USD GDP Price Index Q3 F 1.70% 1.70%
15:00 USD Personal Income M/M Nov 0.30% 0.00%
15:00 USD Personal Spending M/M Nov 0.40% 0.30%
15:00 USD PCE Price Index M/M Nov 0.10% 0.20%
15:00 USD PCE Price Index Y/Y Nov 1.30% 1.30%
15:00 USD Core PCE Price Index M/M Nov 0.10% 0.10%
15:00 USD Core PCE Price Index Y/Y Nov 1.60% 1.60%
15:00 USD Michigan Consumer Sentiment Index Dec F 99.2 99.2
15:00 EUR Eurozone Consumer Confidence Dec P -7 -7