Yesterday saw a slow start to the week with the US off to observe the Martin Luther King, Jr. holiday. The most significant moves since trading resumed in Asia were the dip in JPY crosses and subsequent rally, though the 105.00 area in USDJPY remains contested since the beginning of the year — see chart below for more technical thoughts. Elsewhere, the wily kiwi jumped back to life with a sharp rally after higher than expected inflation data (not exactly shooting the lights out at a gain of 0.1 percent quarter-on-quarter, but there you go). See my thoughts on the NZDUSD chart below.
Chart: USDJPY
USDJPY is stuck in sideways mode for now as it has failed to get comfortably above 105.00 on a couple of previous attempts. Meanwhile, outside of the brief meltdown in the wake of the weak US non-farm payrolls report, the old high area around 103.75 looks like an important support zone.
Chart: NZDUSD
NZDUSD has rallied sharply but the bears can take heart as long as we close below the 61.8 percent retracement area (just shy of 0.8350) as the sell-off cut very deeply and inflicted significant damage on the upmove. I suspect risk appetite will play a role here in determining whether the pair follows through lower again or if the kiwi with nine lives manages to scratch back higher toward 0.8500. I prefer the downside eventually, while recognising that the medium-term technicals are fraught with indecision after multiple false breaks and choppy range trading.
Looking ahead
It looks like the EURUSD will want to key off the German ZEW survey this morning after the pair had a go in Asian hours on Monday at the 1.3500 level. That 1.3550 zone certainly looks like the critical pivot area as it was the old low that is in play here early in the week. We should be either much higher or lower by the end of the week. The next downside area of note is around 1.3350, where the 200-day moving average is lurking and around where some support from early November lows comes in.
See great coverage from MISH on the increasingly farcical Euro stress tests where it appears the original terms of the tests might have resulted in as much as a EUR 700 billion shortfall in bank capital across the Eurozone, but where the ECB may be moving the goalposts to avoid this revelation.
Meanwhile, GBPUSD lost all downside momentum on Friday with the snapback rally from the strong retail sales. I continue to marvel at sterling’s strength considering the stark backdrop of a scary current account deficit that must eventually have negative implications for the currency if it does not show signs of improving soon. This just goes to show how market themes (in this case, the ongoing obsession with where the various central banks are in their anticipated tightening cycles) can trump other critical fundamentals for long periods of time.
We’ve got another Bank of Japan meeting tonight — no expectations except for a “stay the course” message as the programme thus far has managed to engineer activity indicators higher and inflation levels as well. I suspect we get little in the way of policy dynamism until/unless the JPY begins strengthening again. The two possible paths to that eventuality would be via a disappointing growth environment globally (seeing other central banks looking at reversing direction back toward easing again and thus suddenly changing the anticipated trajectory of the policy gap) or via a massive risk-off move in asset markets which could come on fears that further withdrawal of central bank accommodation globally will threaten the liquidity mentality that clearly drives asset prices.
Economic Data Highlights
- New Zealand Q4 CPI out at up 0.1 percent QoQ and up 1.6 percent YoY vs. down 0.1 percent/up 1.5 percent expected, respectively and vs. up 1.4 percent YoY in Q3.
Upcoming Economic Calendar Highlights (all times GMT)
- UK BoE’s Haldane to Speak (0840)
- Euro Zone ECB’s Nowotny to Speak (0900)
- Germany Jan. ZEW Survey (1000)
- UK Jan. CBI Trends – Total Orders, Selling Prices and Business Optimism (1100)
- Canada Nov. Manufacturing/Wholesale Sales (1330)
- Australia Jan. Westpac Consumer Confidence (2330)
- Australia Q4 CPI (0030)
- Japan Bank of Japan Policy announcement (no time given)
- Japan BoJ Governor Kuroda Press Conference after decision (0630)