Daily Report: Yen Crosses Extend Rally on Risk Appetite

The Japanese yen continues to be the biggest loser this week, in particular to commodity currencies, on risk appetite as well as the aftermath of BoJ's surprised additional easing. Yen crosses are hitting multi-month highs and maintaining solid upside momentum. Asian equities are broadly higher following the 123 pts rally in DOW overnight. DOW's close at 12904 was strong but nonetheless kept below this month's high of 12924 so far, i.e., staying in range. Meanwhile, S&P 500 is kept below last year's high of 1370.58. Thus, risk sentiments is still vulnerable for a reversal. Though, before that, the rally in yen crosses should continue.

The situation in Greece dragged on. The EU meeting will be held on Monday but the market remained uncertain whether the rescue plan will be awarded. Meanwhile, some rumors emerged that European Governments are considering cutting the interest rate on Greece's emergency loans and the ECB might give up profits earned on its Greek bonds. The central bank might exchange its current Greek bonds for bonds that would be exempt from any collective action clause. This raised hope that the PSI deal would be finalized soon.

On the data front, another round of important economic data will be released today. UK retail sales are expected to show -0.2% fall in January. From Canada, CPI is expected to be unchanged at 2.3% yoy in January while core CPI is expected to be unchanged at 1.9% yoy. US CPI is expected to moderate to 2.8% yoy in January with core CPI unchanged at 2.2% yoy.

AUD/JPY's strong rally this week and break of 83.94 resistance confirmed resumption of rise from 72.03. Near term is bullish for 100% projection of 72.03 to 83.94 from 74.77 at 86.68 and above. However, we'd like to emphasize that rebound from 72.03 is not decisively impulsive yet. And, it could indeed be just one leg of the consolidation pattern that started at 88.05. Hence, we'll be cautious on reversal signal as the cross approaches 90.02 key resistance.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 102.44; (P) 103.14; (R1) 104.35; More

EUR/JPY's rally resumed after retreat and reaches as high as 104.02 so far today. Intraday bias is back on the upside for 100% projection of 97.03 to 102.20 from 99.24 at 104.41. At this point, rebound from 97.03 is viewed as a correction only and hence we'll be cautious on reversal signal as EUR/JPY approaches falling trend line resistance (now at 105.23). Break of 101.92 support will argue that such rebound is finished and turn bias back to the downside for 99.24 support. However, sustained trading above the trend line will raise the possibility of reversal and will turn focus to 111.57 resistance first.

In the bigger picture, fall from 123.31 is part of the down trend from 2008 high of 169.96 and should target 100% projection of 139.21 to 105.42 from 123.31 at 89.52. At this point, we'd anticipate strong support there to bring at least a rebound attempt, as it's close to 88.96 all time low as well as100% projection of 123.31 to 100.74 from 111.57 at 89.00. Though, a break of 111.57 resistance is needed to be the first signal of medium term reversal. Otherwise, we'll continue to stay bearish in the cross even in case of strong rebound.

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