Fed Hawks Send Yield Higher, Yen Lower

Market overviews

There is no change in the overall theme in the forex markets. Yen’s decline continues and there is no sign of slowing yet. Hawkish comments from Fed officials pushed treasury yields further up. Fed Chair Jerome Powell will speak again today and he’s expected to reinforce the message that more aggressive tightening lies ahead. Euro and Swiss Franc are currently the next weakest for the week. Sterling is surprisingly the strongest for the week, thanks to buying against Euro and Franc. But Australian and New Zealand Dollar are not too far away. Dollar and Canadian are stuck in the middle for now.

Technically, Gold is worth a watch for the rest of the week as it should be about time for a range breakout. The rejections by 4 hour 55 EMA keeps more decline in favor. Break of 1894.77 will resume the fall from 2070.60 towards 1780.10/1853.70 support zone next. However, break of 1949.55 resistance will extend the rebound from 1894.77 towards 2070.06 high. The next move in Gold might also come with corresponding breakout in EUR/USD.

In Asia, at the time of writing, Nikkei is up 2.80%. Hong Kong HSI is up 1.75%. China Shanghai SSE is down -0.12%. Singapore Strait Times is up 0.47%. Japan 10-year JGB yield is up 0.0066 at 0.226. Overnight, DOW rose 0.74%. S&P 500 rose 1.13%. NASDAQ rose 1.95%. 0.058 to 2.373.

Fed Mester expects some 50bps hikes this year

Cleveland Fed President Loretta Mester said in a speech yesterday, “in my view, inflation, which is at a 40-year high, is the number one challenge for the U.S. economy at this time.”

“Given the underlying strength in the economy and the current very low level of the funds rate, I find it appealing to front-load some of the needed increases earlier rather than later in the process because it puts policy in a better position to adjust if the economy evolves differently than expected,” she said.

Mester expects interest rate to be at around 2.50% by the end of 2022. That would require some 50bps hikes at the upcoming meetings.

Fed Daly: It’s time to tighten policy in the US

San Francisco Fed President Mary Daly said in a virtual event yesterday, “even though we have these uncertainties around Ukraine, and we have the uncertainties around the pandemic, it’s still time to tighten policy in the United States.”

“Inflation has persisted for long enough that people are starting to wonder how long it will persist,” she said. “I’m already focused on let’s make sure this doesn’t get embedded and we see those longer-term inflation expectations drift up.”

“In addition to pushing up wage inflation, which could ultimately push up price inflation, putting us in sort of a vicious cycle,” she said, “it’s just not a very sustainable way to manage the economy.”

AUD/JPY and NZD/JPY extends up trend, break long term resistance

Both AUD/JPY and NZD/JPY ride on broad based weakness in Yen and surge strongly this week. More important, both have breached key long term resistance levels.

As for AUD/JPY, there might be some initial rejection by 90.29 resistance. But near term outlook will stay bullish as long as 85.78 resistance turned support holds. Next medium term target is 61.8% projection of 59.85 to 85.78 from 78.77 at 94.79.

More importantly, AUD/JPY’s rise from 59.85 should be reversing the whole down trend from 105.42 (2013 high), which has completed in a three wave structure. Firm break of 94.79 would set the stage for 100% projection at 104.70, which is close the top of a two decade range at 105.42/107.88.

Similarly, NZD/JPY also breaks 83.90 resistance. Near term outlook will stay bullish as long as 80.17 resistance turned support holds. Next medium term target is 61.8% projection of 59.49 to 80.17 from 75.22 at 88.00.

Sustained break of 88.00 will pave the way to 100% projection at 95.90, which is also at the top of two decade range at 94.01/87.74.

Looking ahead

UK CPI and PPI are the main focus today. US will release new home sales while Eurozone will release consumer confidence.

GBP/JPY Daily Outlook

Daily Pivots: (S1) 158.25; (P) 159.24; (R1) 161.22; More…

Intraday bias in GBP/JPY remains on the upside at this point. Up trend form 123.94 has just resumed. Next target is 61.8% projection of 136.96 to 158.19 from 150.95 at 164.07. On the downside, below 159.25 minor support will turn intraday bias neutral and bring consolidations first, before staging another rally.

In the bigger picture, up trend from 123.94 (2020 low) should still be in progress, and notable support from 55 week EMA affirms medium term bullishness. Next target is 61.8% retracement of 195.86 (2015 high) to 122.75 (2016 low) at 167.93. Sustained break there will be a long term bullish signal. This will now remain the favored case as long as 148.94 support holds.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
07:00 GBP CPI M/M Feb 0.60% -0.10%
07:00 GBP CPI Y/Y Feb 5.90% 5.50%
07:00 GBP CPI Core Y/Y Feb 4.80% 4.40%
07:00 GBP RPI M/M Feb 0.70% 0.00%
07:00 GBP RPI Y/Y Feb 8.10% 7.80%
07:00 GBP PPI Input M/M Feb 0.20% 0.90%
07:00 GBP PPI Input Y/Y Feb 13.10% 13.60%
07:00 GBP PPI Output M/M Feb 0.70% 1.20%
07:00 GBP PPI Output Y/Y Feb 10.20% 9.90%
07:00 GBP PPI Core Output M/M Feb 0.90% 1.10%
07:00 GBP PPI Core Output Y/Y Feb 10.00% 9.30%
14:00 USD New Home Sales Feb 815K 801K
14:30 USD Crude Oil Inventories 4.3M
15:00 EUR Eurozone Consumer Confidence Mar P -13 -9