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Dollar Down Trend Continues as DOW Hit Record, Yen Weaker on Yields

Dollar is recovering mildly today but remains one of the weakest for the week, together with Yen and Sterling. Solid risk appetite, with DOW closing strongly at new record overnight, is keeping the greenback and Yen pressured. Yen appears to be slightly weaker with the sharp rally in treasury yield. The Pound, on the other hand, is struggling with coronavirus and lockdowns in the UK. Aussie and Kiwi are currently the strongest ones for the week.

Technically, 127.22 temporary top in EUR/JPY is an immediate focus for today. Sustained break there will confirm resumption of whole up trend from 114.42. A second question is whether that could be accompanied by further rally in EUR/USD, or a rebound in USD/JPY, or both. That could depend on how treasury yields would follow up with yesterday’s rise. In particular, 10-year yield could accelerate further up towards channel resistance after yesterday’s gap breakout.

In Asia, Nikkei closed up 1.60%. Hong Kong HSI is down -0.47%. China Shanghai SSE is down -0.34%. Singapore Strait Times is up 1.63%. Japan 10-year JGB yield is up 0.0227 at 0.043. Overnight, DOW rose 1.44% to 30829.40, new record. S&P 500 rose 0.57%. But NASDAQ dropped -0.61%. 10-year yield rose 0.087 to 1.042.

Dollar index continues with down trend after FOMC minutes

Dollar remains generally pressured after FOMC minutes revealed that members unanimously supported keeping asset purchase pace unchanged. The greenback is only partially supported, more notably against Yen by surging treasury yield. Overall, Dollar is still one of the weakest for the week together with Yen and Sterling.

“All participants judged that it would be appropriate to continue those purchases at least at the current pace, and nearly all favored maintaining the current composition of purchases,” the minutes noted. “A couple of participants indicated that they were open to weighting purchases of Treasury securities toward longer maturities.”

Further, “some participants noted that the committee could consider future adjustments to its asset purchases — such as increasing the pace of securities purchases or weighting purchases of Treasury securities toward those that had longer remaining maturities — if such adjustments were deemed appropriate,” the minutes said.

Dollar index is extending the medium term down trend from 102.99 for now and further decline is expected as long as 91.01 resistance holds. DXY is on track to a key support zone, between 88.25 and 61.8% projection of 102.99 to 91.74 from 94.74 at 87.88. We’d expect further loss of momentum approaching this zone. Tentatively, some strong support should be seen there, at least on first attempt, to bring rebound.

GBP/AUD resuming medium term down trend

Australian Dollar stays firm and continues to ride on strong overall strong risk-on markets. GBP/AUD’s breach of 1.7423 low affirms our bearish view in a prior post. Down trend from 2.0854 should be resuming. Sustained trading below 1.7423 will target 38.2% projection of 2.0854 to 1.7493 from 1.8526 at 1.7242 first. Break will pave the way to 61.8% projection at 1.6449. Though, break of 1.7623 minor resistance will delay the bearish case and extend the consolidation from 1.7423 with another rising leg.

Australia trade surplus narrowed to AUD 5B in Nov, as imports jumped 10% mom

Australia goods and services imports rose 10% mom to AUD 31.4B in November. Goods and services exports rose 3% mom to AUD 36.4B. Trade surplus narrowed to AUD 5.02B, below expectation of AUD 6.45B. Building permits rose 2.6% mom in November.

Looking ahead

The economic calendar is rather busy today. ECB economic bulletin and monetary policy meeting accounts are two focuses in European session. Eurozone will also release CPI flash, retail sales, and confidence indicators. UK will release construction PMI. Swiss will release retail sales and unemployment rate.

Later in the day, US ISM services is the main feature, with trade balance and jobless claims also scheduled. Canada will release trade balance and Ivey PMI.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 126.38; (P) 126.82; (R1) 127.49; More….

Intraday bias in EUR/JPY remains neutral at this point, with focus on 127.22 resistance. Firm break there will resume larger rally from 114.42. Next target will be 128.67 medium term fibonacci level. In any case, outlook will remain bullish as long as 125.92 support holds, in case of another retreat.

In the bigger picture, rise from 114.42 is seen as a medium term rising leg inside a long term sideway pattern. Further rise is expected as long as 121.63 support holds. Decisive break of 127.07 will target 61.8% retracement of 137.49 (2018 high) to 114.42 at 128.67. Sustained trading above there will target 137.49 next. However, firm break of 121.63 will argue that the rise from 114.42 has completed and turn focus back to this low.

Economic Indicators Update

GMTCcyEventsActualForecastPreviousRevised
23:30JPYLabor Cash Earnings Y/Y Nov-2.20%-0.90%-0.70%
0:30AUDBuilding Permits M/M Nov2.60%3.80%3.30%
0:30AUDTrade Balance (AUD) Nov5.02B6.45B7.46B6.58B
6:45CHFUnemployment Rate Dec3.50%3.40%
7:00EURGermany Factory Orders M/M Nov-1.20%2.90%
7:30CHFReal Retail Sales Y/Y Nov3.50%3.10%
9:00EURECB Economic Bulletin
9:30GBPConstruction PMI Dec54.7
10:00EUREurozone CPI Y/Y Dec P-0.20%-0.30%
10:00EUREurozone CPI Core Y/Y Dec P0.20%0.20%
10:00EUREurozone Economic Sentiment Indicator Dec89.587.6
10:00EUREurozone Industrial Confidence Dec-8.2-10.1
10:00EUREurozone Consumer Confidence Dec-14-13.9
10:00EUREurozone Services Sentiment Dec-15-17.3
10:00EUREurozone Business Climate Dec-0.63
10:00EUREurozone Retail Sales M/M Nov-3.00%1.50%
12:30EURECB Monetary Policy Meeting Accounts
12:30USDChallenger Job Cuts Dec64.797K
13:30CADInternational Merchandise Trade (CAD) Nov-3.8B
13:30USDTrade Balance (USD) Nov-64.5B-63.1B
13:30USDInitial Jobless Claims (Jan 1)787K
15:00USDISM Services PMI Dec54.555.9
15:00CADIvey PMI Dec52.7
17:00USDNatural Gas Storage-114B
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