Daily Report: Yen Lower, Aussie Strengthens, ECB in Focus

Yen weakens broadly in Asian on stock rally as well as on comments from Finance Minister Naoto Kan. Kan said that some nations might bring up the issue of Chinese Yuan in the upcoming G7 meeting in Canada and he's prepared to comments on that. Also, Kan expressed that there are still "various measures that could be taken " by BoJ in guiding monetary policy to support the economy. Nevertheless, he again toned down his call by a weaker yen by reiterating that exchange rates should be set by the markets unless there are rapid moves.

Australia dollar was lifted by stronger than expected job report released overnight. The Australia economy gained 35.2k jobs in December, much better than expectation of 10k. Unemployment rate also fell unexpectedly from downwardly revised 5.6% to 5.5% in December. Aussie is still the best performer in 2010 so far, gaining over 3.4% against dollar and nearly 3% against Sterling. AUD/JPY's retreat from 85.33 was brief and shallow so far. The cross is still trading well within the near term rising channel and should be still in progress to correct the whole fall from 08 higher of 104.47. We'd expect the cross to regain strength in near term and have a test on upper channel resistance at 88.67.

Dollar remains soft in general even though downside momentum is mild and the greenback is just staying in range against Euro and Swissy. Commodities stabilize from recent sell off with crude oil staying around 80 level while gold recovers back above 1140. Current development in the dollar index argues that the correction from 78.45 would possibly be deeper than originally thought and could target 61.8% retracement of 74.19 to 78.45 at 75.81 on next fall. However, we'd expect strong support from this fibonacci level to conclude the consolidation. A break above 77.30 minor resistance will now be the first signal that correction from 78.45 has completed and will turn focus back to 78.19 resistance for confirmation.

Looking ahead, ECB is expected to keep the main refinancing rate unchanged at 1% in January. After announcing some liquidity withdrawal measures at the December meeting, the upcoming meeting will likely be a quiet one. President Trichet should describe current interest rates as 'appropriate' and the outlook for growth and inflation 'moderate' with 'broadly balanced' risks to both sides. As Greece is currently preparing the stability program to reduce budget deficit, we expect this will be the focus of the press conference today. More in ECB Preview: Less about Tightening, More about Greece

On the data front, Japan machine orders dropped -11.3% mom, -20.5% yoy in November. Domestic CGPI dropped -3.9% yoy in December. Australian unemployment rate dropped to 5.5% in December. German CPI and Eurozone industrial production will be featured ahead of ECB announcement. In US session, focus will be on retail sales, import price index, jobless claims and business inventories.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.9196; (P) 0.9232; (R1) 0.9275; More

Intraday bias in AUD/USD remains neutral for the moment as consolidations from 0.9321 might still continue. Nevertheless, in case of another fall, downside should be contained by 38.2% retracement of 0.8734 to 0.9324 at 0.9099 and bring rally resumption . ABove 0.9324 will suggest that whole rise from 0.8734 has resumed and should target a test on 0.9404 resistance next.

In the bigger picture, the corrective three wave structure of fall from 0.9404 to 0.8734 suggests that whole medium term rise from 0.6008 is still in progress. Break of 0.9321 resistance will confirm this case and target a test of 0.9404 first. Break will then target 08 high of 0.9849. On the downside, though, break of 0.8734 support will revive the case that whole medium term rise from 0.6008 has completed and will turn outlook bearish for deeper correction towards 0.7702/0.8626 support zone.

Economic Indicators Update

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