Yen Crosses Rebounding as Sentiments Turned Positive

Market overviews

Overtone in the markets turned positive with the strong rebound in US stocks overnight, while Asia indexes follow higher. Australian Dollar is recovering broadly after RBA stood pat and gave nothing new to the markets. On the other hand, Yen is trading broadly lower for now, followed by Dollar and then Euro. It seems that investors are putting Omicron risks, and even the prospect of earlier Fed hike behind.

Technically, our attention will be on Yen crosses. 113.94 minor resistance in USD/JPY is the first level to watch. Break there will suggest that pull back from 115.51 has completed after defending 112.71 support and bring retest of 115.51 high. Also, break of 128.77 minor resistance in EUR/JPY and 152.35 resistance in GBP/JPY would affirm selling momentum in Yen for the near term.

In Asia, at the time of writing, Nikkei is up 1.98%. Hong Kong HSI is up 1.46%. China Shanghai SSE is up 0.12%. Singapore Strait Times is up 0.24%. Japan 10-year JGB yield is up 0.0177 at 0.059. Overnight, DOW rose 1.87%. S&P 500 rose 1.17%. NASDAQ rose 0.93%. 10-year yield rose 0.091 to 1.434.

RBA keeps cash rate at 0.1%, asset purchase as 4B a week

RBA left monetary policy unchanged as widely expected. The cash rate target is held at 0.10%. It reiterated that “the Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range.”

Asset purchases will continue at AUD 4B a week until at least mid-February 2022. The decision on the program in February will be guided by the same three considerations used from the outset: “the actions of other central banks; how the Australian bond market is functioning; and, most importantly, the actual and expected progress towards the goals of full employment and inflation consistent with the target.”

Australia AiG services rose to 49.6, underachieving relative to expectations

Australia AiG Performance of Services rose 2.0 pts to 49.6 in November. Sales dropped -1.6 to 53.6. Employment dropped -0.6 to 56.2. New orders rose 8.6 to 47.4. Supplier deliveries rose 0.9 to 40.4. Input prices dropped -8.3 to 65.3. Selling prices dropped -3.5 to 58.2.

Ai Group Chief Executive, Innes Willox, said: “The Australian services sector was broadly stable in November, underachieving relative to expectations of a more convincing recovery after the COVID-19 downturn in recent months.”

Also released, house price index rose 5.0% qoq in Q3, slightly below expectation of 5.1% qoq.

RBNZ Hawkesby: A higher currency helps us achieve objectives more quickly

RBNZ Assistant Governor Christian Hawkesby said today that the central bank would take “considered steps” in raising interest rate. He added, “we have more confidence around the fact that the labour market is tight and that’s going to build inflation pressures.”

Regarding the government’s plan to reopen borders from January, Hawkesby said “One risk we are conscious of in the very short term is that even when the borders reopen, that actually becomes easier for more Kiwis to leave the country than it does for foreigners to come in… So there is a potential that the labour market gets tighter before it gets looser”.

Also, “at the moment a higher currency in the short term will actually help us achieve our objectives more quickly because a strong currency will feed through a lower tradeables inflation and feed through to lower inflation, and we are managing inflation from the top side.”

Separately, outgoing Deputy Governor Geoff Bascand said inflation is “definitely got some persistence to it for the next 12 months”. He added, we’ll see the CPI moving along at 4 percent over the next year, but we think it will moderate over time, some of those things that have driven it up won’t last forever.”

Bascand also said, “we will keep reducing stimulus and do our part to stop inflation from getting momentum into it.”

China exports rose 22% yoy in Nov, imports rose 31.7% yoy

In November in USD term, China exports rose 22.0% yoy, above expectation of 17.2% yoy. Imports rose 31.7% yoy, versus expectation of 19.5% yoy. Trade surplus narrowed to USD 71.7B, down from USD 84.5B, below expectation of USD 82.2B.

In CNY term, exports rose 16.6% yoy, below expectation of 17.2% yoy. Imports rose 26.0% yoy, above expectation of 9.4% yoy. Trade surplus narrowed to CNY 461B, down from CNY 546B, below expectation of CNY 575B.

From Japan, labor cash earnings rose 0.2% yoy in October, below expectation of 0.4% yoy. Household spending dropped -0.6% yoy, matched expectations.

Looking ahead

Swiss unemployment rate and foreign currency reserves, Germany industrial production and ZEW economic sentiment, France trade balance, and Eurozone GDP will be released in European session.

Later in the day, US will release trade balance and non-farm productivity. Canada will release trade balance and Ivey PMI.

GBP/JPY Daily Outlook

Daily Pivots: (S1) 149.62; (P) 150.12; (R1) 151.05; More…

Intraday bias in GBP/JPY is turned neutral with current recovery. A temporary low is formed at 148.94, just ahead of 100% projection of 158.19 to 152.35 from 154.70 at 148.86, which is close to 148.93 key structural support. On the upside, break of 152.35 support turned resistance will argue that the pull back from 158.19 is complete. Intraday bias will be turned back to the upside for retesting 158.19 high. However, on the downside, decisive break there will carry larger bearish implication and target 161.8% projection at 145.25 next.

In the bigger picture, the break of medium term channel support, and bearish divergence condition in week MACD are raising the chance of medium term topping at 158.19. Firm break of 148.93 support will argue that GBP/JPY is at least correcting the whole rise from 123.94 (2020 low). In this case, deeper fall would be seen to 38.2% retracement of 123.94 to 158.19 at 145.10. Nevertheless, strong rebound from 148.93 will retain medium term bullishness for another rise through 158.19 at a later stage.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
21:30 AUD AiG Performance of Services Index Nov 49.6 47.6
23:30 JPY Labor Cash Earnings Y/Y Oct 0.20% 0.40% 0.20%
23:30 JPY Household Spending Y/Y Oct -0.60% -0.60% -1.90%
00:01 GBP BRC Like-For-Like Retail Sales Y/Y Nov 1.80% 0.30% -0.20%
00:30 AUD House Price Index Q/Q Q3 5.00% 5.10% 6.70%
02:00 CNY Trade Balance (USD) Nov 71.7B 82.2B 84.5B
02:00 CNY Exports Y/Y Nov 22.00% 17.20% 27.10%
02:00 CNY Imports Y/Y Nov 31.70% 19.50% 20.60%
02:00 CNY Trade Balance (CNY) Nov 461B 575B 546B
02:00 CNY Exports (CNY) Y/Y Nov 16.60% 17.20% 20.30%
02:00 CNY Imports (CNY) Y/Y Nov 26.00% 9.40% 14.50%
03:30 AUD RBA Interest Rate Decision 0.10% 0.10% 0.10%
05:00 JPY Leading Economic Index Oct P 100.2 100.9
06:45 CHF Unemployment Rate Nov 2.60% 2.70%
07:00 EUR Germany Industrial Production M/M Oct 0.80% -1.10%
07:45 EUR France Trade Balance (EUR) Oct -6.2B -6.8B
08:00 CHF Foreign Currency Reserves (CHF) Nov 923B
10:00 EUR Eurozone GDP Q/Q Q3 2.20% 2.20%
10:00 EUR Eurozone Employment Change Q/Q Q3 F 0.90% 0.90%
10:00 EUR Germany ZEW Economic Sentiment Dec 25.3 31.7
10:00 EUR Germany ZEW Current Situation Dec 5 12.5
10:00 EUR Eurozone ZEW Economic Sentiment Dec 23.5 25.9
13:30 USD Trade Balance (USD) Oct -66.9B -80.9B
13:30 USD Nonfarm Productivity Q3 -4.90% -5.00%
13:30 USD Unit Labor Costs Q3 8.40% 8.30%
13:30 CAD Trade Balance (CAD) Oct 1.6B 1.9B
15:00 CAD Ivey PMI Nov 60.2 59.3