Yen Extends Decline Against Dollar and Canadian

Market overviews

Yen’s selloff continues in Asian session today, on expectation of further divergence in BoJ’s policy with other major central banks. BoC’s mega 100bps hike overnight prompted talks that Fed could follow later in the month, given that headline consumer inflation is showing no sign of even plateauing. Dollar remains the strongest one for the week, followed by Canadian and then Swiss Franc. Yen is the worst performing, followed by Euro, and then Sterling.

Technically, CAD/JPY looks ready to follow USD/JPY in upside breakout finally. Immediate focus is now on 107.19 resistance. Firm break there will target 61.8% projection of 97.78 to 107.19 from 103.34 at 109.15, and then 100% projection at 112.75. However, for now, other Yen crosses are not showing similar bullish sign yet.

In Asia, at the time of writing, Nikkei is up 0.83%. Hong Kong HSI is down -0.14%. China Shanghai SSE is up 0.26%. Singapore Strait Times is down -0.79%. Japan 10-year JGB yield is down -0.0018 at 0.236. Overnight, DOW dropped -0.67%. S&P 500 dropped -0.45%. NASDAQ dropped -0.15%. 10-year yield dropped -0.054 to 2.904.

Fed Mester: No reason to have a smaller hike than 75bps

Cleveland President Loretta Mester told Bloomberg TV yesterday, the June inflation report was “uniformly bad”. “There was no good news in that report at all,” she said. “We at the Fed have to be very deliberate and intentional about continuing on this path of raising our interest rate until we get and see convincing evidence that inflation has turned a corner.”

“Certainly the inflation report suggests that there’s no reason to say that a smaller rate increase than we did last time, right, because nothing moved in that direction,” she added.

Asked if a 100bps hike is appropriate this month, Mester said, “We’re going to have the meeting and we’re going to talk about what the appropriate path of policy is. We don’t have to make a decision today.”

Fed Bostic: Inflation trajectory not moving in positive way

Commenting on yesterday’s US CPI report, which showed headline inflation surged to 9.1%, Atlanta Fed President Raphael Bostic said the “numbers suggest the trajectory is not moving in a positive way”. But, “how much I need to adapt is really the next question,” as he needed to study the “nuts and bolts” of the report.

“The top-line number is a source of concern,” Bostic said, “Everything is in play.” Asked if that included by raising rates by a full percentage point, following BoC’s surprised move, he replied, “it would mean everything.”

Australia unemployment rate dropped to 3.5%, lowest since 1974

Australia employment grew 88.4k in June, above expectation of 30.0k. Full time jobs grew 52.9k while part-time jobs rose 35.5k. Unemployment rate dropped sharply from 3.9% to 3.5%, below expectation of 3.8%. That’s the lowest level since August 1974. Participation rate rose from 66.7% to 66.8%. Monthly hours worked was essentially unchanged at 1856m.

Bjorn Jarvis, head of labour statistics at the ABS, said: “The 3.4 per cent unemployment rate for women was the lowest since February 1974 and the 3.6 per cent rate for men was the lowest since May 1976.”

“The large fall in the unemployment rate this month reflects more people than usual entering employment and also lower than usual numbers of employed people becoming unemployed. Together these flows reflect an increasingly tight labour market, with high demand for engaging and retaining workers, as well as ongoing labour shortages.”

Looking ahead

Swiss PPI will be released in European session. Later in the day, US will release jobless claims and PPI. Canada will release manufacturing sales.

USD/JPY Daily Outlook

Daily Pivots: (S1) 136.39; (P) 136.96; (R1) 137.44; More…

USD/JPY’s up trend resumes by breaking 137.74 and intraday bias is back on the upside. There is sign of upside re-acceleration as seen in daily and 4 hour MACD too. Next target is 100% projection of 114.40 to 131.34 from 126.35 at 143.29. On the downside, below 136.46 minor support will turn intraday bias neutral and bring consolidations first, before staging another rally.

In the bigger picture, current rally is seen as part of the long term up trend from 75.56 (2011 low). Next target is 100% projection of 75.56 (2011 low) to 125.85 (2015 high) from 98.97 at 149.26, which is close to 147.68 (1998 high). This will remain the favored case as long as 126.35 support holds.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:01 GBP RICS Housing Price Balance Jun 65% 70% 73%
01:00 AUD Consumer Inflation Expectations Jul 6.30% 6.70%
01:30 AUD Employment Change Jun 88.4K 30.0K 60.6K
01:30 AUD Unemployment Rate Jun 3.50% 3.80% 3.90%
04:30 JPY Industrial Production M/M May F -7.50% -7.20% -7.20%
06:30 CHF Producer and Import Prices M/M Jun 0.70% 0.90%
06:30 CHF Producer and Import Prices Y/Y Jun 7.30% 6.90%
12:30 CAD Manufacturing Sales M/M May 1.40% 1.70%
12:30 USD Initial Jobless Claims (Jul 8) 240K 235K
12:30 USD PPI M/M Jun 0.80% 0.80%
12:30 USD PPI Y/Y Jun 10.80% 10.80%
12:30 USD PPI Core M/M Jun 0.50% 0.50%
12:30 USD PPI Core Y/Y Jun 8.60% 8.30%
14:30 USD Natural Gas Storage 56B 60B

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