Yen Gives Back Gains On Risk Asset Recovery, Euro At 9-Year Low

The euro was under pressure again today, making fresh lows at 1.1848 as traders prepared for the eurozone preliminary CPI data for December. Year-on-year inflation in the single currency area could dip into negative territory at -0.1% according to a Reuters economists’ poll. Expectations for the announcement of fresh Quantitative Easing measures are building up ahead of the January 22nd ECB meeting. In addition, there is caution ahead of the January 25 Greek election that could unseat the current pro-bailout government. The German government was rehearsing scenarios that involved Greece’s exit from the eurozone, according to some reports.

The dollar managed to claw back above the 119 level versus the Japanese yen, as risk sentiment turned more neutral following heavy losses by risk assets since the beginning of the year. The Japanese Nikkei stock index was flat on the day and US stock index futures were positive in Asia following additional losses during Tuesday’s US session.

In other markets, oil continued to make fresh 6-year lows below 50 dollars a barrel, while government bond yields also dropped. The 10-Year US government bond for example was yielding less than 2% at 1.95%. Worries about the strength of the global economy also surfaced following the previous day’s disappointing PMI figures, from the United Kingdom and the eurozone to the United States.

Looking ahead to the remainder of the day, the minutes of the latest Federal Reserve Open Market Committee meeting will attract some attention as they will shed light into the deliberations that led the committee to say it will be “patient” with respect to raising interest rates. In other data, eurozone unemployment for November will be released together with the flash inflation estimate for December, while in the US, the Automatic Data Processing (ADP) payroll numbers will be released early in the US session.

Technical Analysis – EUR/JPY bearish below cloud

EUR/JPY turned increasingly bearish after breaking below the Ichimoku cloud on the daily chart. Momentum is bearish as well, since the RSI is below 50. The negatively aligned Tenkan-Sen and Kijun-Sen lines are also adding to the bearish market structure.
The pair is approaching a critical area around the psychological 140.00 level. The 61.8% Fibonacci retracement of the upleg from 134.13 to 149.76 lies at 140.00 and the 200-day moving average currently stands at 140.24. A break below 140 gives scope to a move towards 137.50 (78.6% Fibonacci) and then 134.13 (October 16 low).