Euro Rebounds Against While Stock Traders Take Profit

Market overviews

The forex markets are reversing some of this week moves today, as stock investors are also taking some profits ahead of the weekend. Euro is the better performing so far, followed by Swiss Franc, Dollar and Yen. Meanwhile, Sterling and commodity currencies are the weaker ones. As for the week, Dollar is the weakest together with Yen while Sterling is the strongest with Kiwi. Nonetheless, all major pair are now trading inside prior week’s range, except Sterling versus Aussie. Forex traders haven’t made up their minds on a direction yet.

Technically, Euro has recovered after yesterday’s ECB rate decision, and defended near term bottom against Dollar, Yen and Swiss Franc. Focus is back to near term resistance minor resistance level. EUR/USD has already taken out 1.2157 to resume the rebound from 1.2052. EUR/JPY could have a take on 126.19 and break will resume the rebound from 125.07. More importantly, break of 0.8923 minor resistance in EUR/GBP would argue that it has regained 0.8861 key support, keeping near term outlook neutral at worst.

In Asia, currently, Nikkei closed down -0.44%. Hong Kong HSI is down -1.30%. China Shanghai SSE is down -0.41%. Singapore Strait Times is down -0.72%. Japan 10-year JGB yield is up 0.0062 at 0.042. Overnight, DOW dropped -0.04%. S&P 500 rose 0.03%. NASDAQ rose 0.55%. 10-year yield rose 0.019 to 1.109.

Japan PMI manufacturing dropped to 49.7 in Jan, short-term activity undoubtedly hampered by rising coronavirus cases

Japan PMI Manufacturing dropped to 49.7 in January, down from 50.0, back in contraction. PMI Services dropped to 45.7, down from 47.7. PMI Composite dropped to 46.7, down from 48.5.

Usamah Bhatti, Economist at IHS Markit, said: “Short-term activity will undoubtedly be hampered by rising coronavirus disease 2019 (COVID-19) cases, as the government declared a state of emergency in Tokyo and introduced further measures to curb rising infection rates. As a result, positive sentiment weakened across the private sector. Firms are still predicting growth over the coming 12 months, although concern remains that the impact of the pandemic will be prolonged.”

Japan CPI core dropped to -1% yoy in Dec, worst since 2010

Japan CPI core (all item ex-fresh food) dropped further to -1.0% yoy in December, down from -0.2% yoy, but was above expectation of -1.1% yoy. That’s still the biggest annual decline in core inflation since September 2010. Headline CPI (all items) dropped to -1.2% yoy, down from -0.9% yoy. CPI core-core (all item ex-fresh food and energy) dropped to -0.4% yoy, down from -0.3% yoy.

“I don’t think the risk of Japan sliding back into deflation is high,” BOJ Governor Haruhiko Kuroda insisted yesterday. “But potential growth may be falling so we need to look at the impact (on prices) carefully.”

Australia CBA PMI manufacturing rose to 57.2, 49-month high

Australia CBA PMI manufacturing rose to 57.2 in January, up from 55.7. That;s also the highest level in 49 months. PMI Services dropped to 55.8, down from 57.0. PMI Composite dropped slightly to 56.0, down from 56.6.

Pollyanna De Lima, Economics Associate Director at IHS Markit, said: “The Australian private sector remained resilient at the start of the year, despite the COVID-19 pandemic, with the flash PMI showing sustained growth of new orders, output and employment… While this boost in demand is welcome, inflationary pressures seem to be mounting….

“Material shortages and restricted freight capacity remained key themes of the survey…. Businesses were upbeat towards the year-ahead outlook for output, with hopes pinned on vaccine developments and the eventual lifting of restrictions globally. However, optimism weakened in January, dampened by concerns over the long-term effects of the COVID-19 pandemic on the economy.”

Australia retail sales dropped -4.2% mom in Dec, Victoria down -7%

Australia retail sales dropped -4.2% mom in December, much worse than expectation of -1.5% mom. Over than year, sales rose 9.4% yoy. Victoria led the falls by state, down -7% following a 22% rise in November, while New South Wales fell -5% as localized restrictions in Sydney impacted turnover. All states and territories, except for the Northern Territory, fell this month.

New Zealand BusinessNZ manufacturing dropped to 48.7, caution heading into the New Year

New Zealand BusinessNZ Manufacturing index dropped to 48.7 in December, down from 54.7. The manufacturing was back in contraction after staying in expansion territory for six straight months. Looking at some details, production dropped from 55.0 to 51.5. Employment dropped from 51.3 to 49.9. New orders dropped from 56.5 to 49.9. Finished stocks dropped from 59.2 to 45.9. Deliveries also dropped from 51.5 to 44.5.

BNZ Senior Economist, Doug Steel said that “the PMI’s three-month moving average sits at an expansionary 51.8, albeit below its long-term average of 53.0. This all suggests some expansion in the final quarter of last year, but the softer December month suggests some caution heading into the New Year.”

New Zealand CPI unchanged at 1.4% yoy in Q4, underlying inflation higher

New Zealand CPI rose 0.5% qoq in Q4, above expectation of 0.2% qoq. Annually, CPI was unchanged at 1.4% yoy, above expectation of 1.0% yoy.

The trimmed means CPI, which exclude extreme price movements, ranged from 1.7% to 2.1% yoy, indicating that underlying inflation is higher than the 1.4% overall increase in CPI.

Looking ahead

UK will release retail sales, public sector net borrowing and PMIs in European session. Eurozone will release PMIs. Later in the day, Canada will release retail sales. US will release PMIs and existing home sales.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 125.52; (P) 125.75; (R1) 126.16; More….

EUR/JPY rebounds notably but stays below 126.19 minor resistance. Intraday bias remains neutral first. On the upside, break of 126.19 will reaffirm the case that correction from 127.48 has completed at 125.07. Intraday bias will be turned back to the upside for retesting 127.48 high. On the downside, however, break of 125.07 will resume the correction from 127.48. Intraday bias will be turned back to the downside for 61.8% retracement of 121.63 to 127.48 at 123.86.

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

GMT Ccy Events Actual Forecast Previous Revised
21:45 NZD CPI Q/Q Q4 0.50% 0.20% 0.70%
21:45 NZD CPI Y/Y Q4 1.40% 1.00% 1.40%
22:00 AUD CBA Manufacturing PMI Jan P 57.2 55.7
22:00 AUD CBA Services PMI Jan P 55.8 57
23:30 JPY National CPI Core Y/Y Dec -1.00% -1.10% -0.90%
00:01 GBP GfK Consumer Confidence Jan -28 -29 -26
00:30 AUD Retail Sales M/M Dec P -4.20% -1.50% 7.10%
00:30 JPY Manufacturing PMI Jan P 49.7 50.1 50
07:00 GBP Retail Sales M/M Dec 1.00% -3.80%
07:00 GBP Retail Sales Y/Y Dec 4.00% 2.40%
07:00 GBP Retail Sales ex-Fuel M/M Dec 0.30% -2.60%
07:00 GBP Retail Sales ex-Fuel Y/Y Dec 6.50% 5.60%
07:00 GBP Public Sector Net Borrowing (GBP) Dec 31.5B 30.8B
08:15 EUR France Manufacturing PMI Jan P 50.8 51.1
08:15 EUR France Services PMI Jan P 48.3 49.1
08:30 EUR Germany Manufacturing PMI Jan P 58 58.3
08:30 EUR Germany Services PMI Jan P 45.5 47
09:00 EUR Eurozone Manufacturing PMI Jan P 55 55.2
09:00 EUR Eurozone Services PMI Jan P 44.8 46.4
09:30 GBP Manufacturing PMI Jan P 53 57.5
09:30 GBP Services PMI Jan P 45.3 49.4
13:30 CAD Retail Sales M/M Nov 0.40%
13:30 CAD Retail Sales ex Autos M/M Nov 0.00%
14:45 USD Manufacturing PMI Jan P 56.5 57.1
14:45 USD Services PMI Jan P 54 54.8
15:00 USD Existing Home Sales Dec 6.46M 6.69M
15:30 USD Natural Gas Storage -134B
16:00 USD Crude Oil Inventories -3.2M