Daily Report: Yen Tumbles, Dollar Soft on Risk Appetite

The Japanese yen is sold off while dollar is mildly lower as the week starts following strong rally in Asian stock markets. Australian dollar and New Zealand dollar continue to be the main beneficiary of the current in risk appetite. Nikkei is up nearly 3.4% to 8215, finally close above 8,000 psychological level. Markets are rejoicing the news that Obama administration is set to unveil the so called Public-Private Investment Program. The Treasury, Fed and FDIC will all play a role together with private investors to help remove as much as $1 trillion of toxic assets from banks' books.

Elsewhere, Japan Finance Minister Yosano urged a new fiscal stimulus of more that $200b to revive the economy of Japan. The Bank of Japan released minutes for last week's meeting. The central bank increased purchase of long term JGB up to 21.6trillion yen from 16.8 trillion yen in order to revive the economy. Despite this, the BOJ still lags BOE and Fed in terms of balance sheet expansion. We believe the central bank will need additional QE measures so as to prevent the Japanese yen from further appreciation against these currencies.

Looking ahead, trade deficit in the Eurozone is expected to have widened to 8.9B euro in January from 0.7B euro as contraction in exports was more severe that decline in imports.

In Canada, leading indicator should have fallen -0.9% in February after a -0.8% drop in the previous month as unemployment has risen and household wealth has contracted. The main factor for economic recovery hinges on US which is Canada's biggest trading partner.

In the US, existing home sales probably plunged -0.9% mom to 4.45M units in February following a worse-than-expected -5.43% decline to 4.49M in the previous month. Although the reading may look better, whether the improvement is sustainable depends on employment situation and effectiveness of the Fed's asset purchase plan to stimulate growth.

Technically, some more weakness should be seen in the dollar index as long as 84.61 resistance holds. But we'd maintain the view that 81/82 level is critical to the long term up trend in the dollar index. As discussed before, there is an important cluster support of 61.8% retracement of 77.69 to 89.62 at 82.24 and 38.2% retracement of 70.70 to 89.62 at 82.39. In addition, the long term rising trend line support is now sitting at 81.40 level. Strong rebound from that level, followed by break of 84.61 resistance will keep the long term up trend intact. However, as noted before, sustained trading below 81/82 will strongly suggest that the long term up trend has completed with bearish divergence conditions in both daily and weekly MACD and RSI

EUR/JPY Daily Outlook

Daily Pivots: (S1) 129.36; (P) 129.91; (R1) 130.83; More.

EUR/JPY's rally extends further to as high as 131.94 today, taking out mentioned 131.03 key medium term resistance and remains firm there so far. From a short term angle, further rally should still be seen as long as 127.98 support holds. The break of 131.03 argues that rise from 112.10 is developing into larger scale rally and should now target 38.2% retracement of 169.96 to 112.10 at 134.20 next. On the downside, below 127.98 will turn short term outlook neutral first.

In the bigger picture, the break of 131.03 key resistance suggests that EUR/JPY has possibly made a medium term bottom at 112.10 already. Focus now turns to mentioned 134.20 fibo resistance and sustained break there will confirm. Note that in this case, the rise from 112.10 is still treated as correction to fall from 116.96 only. Nevertheless, it should target 55 weeks EMA (now at 138.66) with prospect of reaching 61.8% retracement of 169.96 to 112.10 at 147.85. On the downside, below 122.09 support is needed to indicate that rise from 112.10 has completed. Otherwise, further rise is in favor in case of pull back.

Forex News Digest

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• Euro Currency of Choice as Quantitative Easing Drives Dollar Depreciation
• Dollar, Yen Extend Drop as U.S. Plan to Help Banks May Boost Yield Demand
• Australian Dollar Gains a 10th Day on Stocks; New Zealand Dollar Advances
• Euro May Rise 10% to 144.15 Yen as Resistance Breached: Technical Analysis

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