Mid-Day Report: Yen Soars as Risk Aversion Dominates

Risk aversion remains the dominant theme following negative open in the US stock markets. AUD/JPY continues to lead the way down and dropped 4% or over 240 pips as the Aussie is additionally pressured by fall in gold prices. EUR/JPY dives through 120 level while USD/JPY also takes out 90 level. Commodities are also under some pressure with gold down to as low as 821 while crude oil dropped to as low as 37.92. Dollar, on the other hand, ride on risk aversion and have the dollar index climbs further to 83.33 so far. Economic calendar is nearly empty today. Canadian new housing price index dropped -0.3% in Nov, inline with expectations.

UK Prime Minister Brown said that UK government will announce plans to fund selected industrials to stimulate investments. German government finalized the EUR 50b rescue package today, which include EUR 10b increase in public infrastructure investment and possibly higher benefits for lon-term job seekers and familiars. Speaking as head of Bank for International Settlements, ECB Trichet said that central bankers are expecting the global economy to recover in 2010 and pledged to do whatever is appropriate to reinforce confidence in the markets. Though, Trichet declined to comment on Eurozone Monetary Policy. Markets are expecting another 50bps rate cut from ECB this Thursday but opinions are quite divided for the moment.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 89.80; (P) 90.73; (R1) 91.30; More.

USD/JPY's fall from 94.61 extends further to as low as 89.47 in early US session and break of 90.14 cluster support confirms that rebound from 87.13 has completed already. The corrective three wave structure is consistent with the medium term bearish view. At this point, intraday bias remains for a retest of 87.13 low first and break there will indicate the medium term down trend has resumed. On the upside, though, above 91.67 will suggest will turn intraday outlook neutral first and argue that consolidation from 87.13 will extend further before completion.

In the bigger picture, with USD/JPY still staying below 55 days EMA, fall from 110.66 should still be in progress. On resumption, such decline should target 100% projection of 124.13 to 95.77 from 110.66 at 82.3. However, considering bullish convergence condition in daily MACD, another rise above 94.61 will be another alert that whole decline from 110.66 has completed. Focus will then be on 100.54 resistance for confirmation.

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