Daily Report: Dollar and Yen Firm as G7 Offered Little to Calm Eurozone Worries

Dollar and yen are generally firm as the week starts on soft stocks and commodities. Nikkei closed below 10,000 level at 9983, down -0.73%, extending last week's sharp fall. Crude oil fails to stand above 72 level so far while gold also struggles to stay above 1070 level. On the other hand, dollar index is staying firm above 80 level for the moment. G7 met over the weekend and pledged to maintain stimulus measures. Jean-Claude Juncker, chairman of the group of eurozone finance ministers, though, said that situations of Greece, Portugal and Spain were discussed but they've expressed the issues will be solved "ourselves without the help of the IMF." The comments did no support to the current fragile market sentiments.

Risk aversion will remain the dominant driving force in near term and as discussed before, we'd continue to favor yen over dollar in flight-to-safety buying. One of the major reasons is the development in US Treasury yields. Last week's development suggests that another round of decline is undergoing in yield of 10 year notes with Jan's low of 3.576 clearly taken out. We'd expect more decline in yields towards lower end of the medium term range near to 3.1% and that should provide additional support to yen comparing to dollar.

Looking at the dollar index, intraday bias remains on the upside and further rally should be seen towards 100% projection of 74.19 to 78.45 from 76.60 at 80.86 next. Below 79.95 minor support will turn intraday bias neutral and being consolidations. But downside should be contained above 78.68 support and bring rally resumption.

On the data front, Japan current account surplus narrowed to JPY 1.10T in December. Eco watchers survey, current, rose more than expected to 38.8 in January. Swiss unemployment rate unexpectedly dropped to 4.1% in Jan. Swiss retail sales, Eurozone Sentix investor confidence and Canada housing starts will be released later today.

GBP/JPY Daily Outlook

Daily Pivots: (S1) 138.07; (P) 139.74; (R1) 141.25; More

Intraday bias in GBP/JPY remains on the downside for the moment and further decline is expected to be seen towards 61.8% retracement of 118.81 to 163.05 at 135.70 next. On the upside, above 141.41 minor resistance will turn intraday bias neutral and bring consolidations. But upside should be limited below 145.26 resistance and bring another fall.

In the bigger picture, medium term rebound from 118.18, which is a correction to the long term down trend from 07 high of 251.90, has completed at 163.05 already. Decline from 163.05 is tentatively treated at resumption of the long term down trend from 2007 high of 251.09 and should target a new low below 118.81. On the upside, break of 150.68 resistance is needed to invalidate this view. Otherwise, outlook will remain bearish.

Economic Indicators Update

Subscribe to our daily and mid-day newsletter to get this report delivered to your mail box