Dollar Under Broad Based Pressure on USD/JPY Downside Breakout

Dollar’s broad based decline resumes today with the help from downside break out in USD/JPY. Risk sentiments are firm on reopening optimism, with generally rally in European indices. Swiss Franc is pressured as the third weakest, following Dollar and New Zealand Dollar. Yet, Yen is not too bothered and is trading as the third strongest, following Australia and Canadian. Dollar might look into consumer confidence data but that might provide little help.

Technically, USD/JPY finally takes out 106.91 support to resume whole fall from 111.71. Next near term downside target is 104.58 projection level. The development prompts selloff in the greenback elsewhere, rather that drags down Yen crosses. In particular, EUR/USD is pressing 1.0885 minor resistance. Break will likely start the third leg of the corrective pattern towards 1.1147 resistance. Similarly, USD/CHF failed 0.9082 resistance with today’s rally attempt. Break of 0.9712 minor support will extend the corrective pattern from 0.9901 with a third leg to 0.9502 support.

In Europe, currently, FTSE is up 1.87%. DAX is up 1.84%. CAC is up 1.90%. German 10-year yield is down -0.015 at -0.468. Earlier in Asia, Nikkei dropped -0.06%. Hong Kong HSI rose 1.22%. China Shanghai SSE dropped -0.19%. Singapore Strait Times rose 0.53%. Japan 10-year JGB yield dropped -0.0075 to -0.045.

US trade deficit widened to USD 64.2B, both imports and exports dropped

US goods trade deficit widened 7.2% mom to USD 64.2B in March, up from February’s USD 59.9B. Exports of goods dropped USD -9.1B to USD 127.6B. Imports of goods dropped USD -4.8B to US 19.9B. Wholesales inventories dropped -1.0% mom to USD 650B.

UK CBI realized sales dropped to -55, record low

UK CBI realized sales dropped sharply form -3 to -55 in April, hitting a joint record low with December 2008. A net balance of -55% retailers reported decline in sales. They also expect a similar pace of decline in May, at balance of -54%, weakest expectations on record.

Rain Newton-Smith, CBI Chief Economist, said: “It’s no surprise that the lockdown is hitting retailers hard. Two fifths have shut up shop completely for now. And sales of groceries and other essentials also fell, suggesting households may have been dipping into stockpiles built up prior to the lockdown or tightening their belts more generally as incomes take a hit.”

Ifo: German economy to contract -6.6% this year

Ifo head of economic forecasts Timo Wollmershäuser said Germany’s GDP should have dropped by -1.9% in Q1 and would contract -12.2% in Q2. Overall, the economy is likely to shrink by -6.6% in this calendar adjusted year, or -6.2% when the large number of working days are taking into account.

Wollmershäuser adds: “We will only be back to the state before Corona at the end of 2021. Then as many goods and services will be produced as in a situation without a corona crisis. The gross domestic product will have to increase by 8.5 percent in 2021. ”

Also from Ifo, Germany’s employment barometer plunged to 86.3 in April, down from 93.4, hitting a new record low. All four sectorial employment barometer also deteriorated and turned negative (manufacturing from -18.3 to -28.6, services from -3.4 to -19.4, trade fro m-8.0 to -25.6, construction from 2.3 to -7.0.

BoJ Kuroda: Longer coronavirus pandemic could push up credit costs

BoJ Governor Haruhiko Kuroda told the parliament that there could be surge in credit costs if the coronavirus pandemic lasts longer than expected. But for now, the risk is low.

“If it takes longer than expected to contain the virus at home and abroad, that could hurt the economy and push up credit costs for financial institutions,” Kuroda said.

“The risk of this happening now isn’t big. But it’s something we need to be vigilant about. We’ll closely work with the Financial Services Agency on this matter.”

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 106.96; (P) 107.29; (R1) 107.60; More…

USD/JPY finally breaks 106.91 support to resume the decline from 111.71 today. Intraday bias is back on the downside for 100% projection of 111.71 to 106.91 from 109.38 at 104.58 next. Momentum of the current decline and reaction from 104.58 should reveal whether USD/JPY is resuming larger down trend. On the upside, break of 108.04 resistance is needed to indicate short term bottoming. Otherwise, further fall will remain in favor even in case of recovery.

In the bigger picture, at this point, whole decline from 118.65 (Dec 2016) continues to display a corrective look, with well channeling. There is no clear sign of completion yet. Break of 101.18 will target 98.97 (2016 low). Meanwhile, sustained break of 112.22 should confirm completion of the decline and turn outlook bullish for 118.65 and above.

Economic Indicators Update