Mid-Day Report: Japanese Yen and Swiss Franc Mildly Lower on Intervention Talks

The Japanese yen weakens mildly in otherwise dull market today. It's reported that government data released today showed Japan as carried out secret intervention in November. A total of JPY 1.02T was sold against US dollar in the first week of November. The last public intervention was on October 31, in scale of JPY 8.07T. Japan has recently stepped up rhetoric on intervention as USD/JPY approaches 75.56 historical low. But the volume of the voices was somewhat turned down after USD/JPY rebounded since last week. Intervention is always a threat in the Japanese. But after all, we'd maintain that barring unusual circumstances, further intervention would be unilateral and the impact of such interventions would be short lived. Any recovery in yen crosses are still viewed as selling opportunities for larger down trends.

Talking about intervention, SNB interim President Jordan reiterated today that it swill enforce the EUR/CHF 1.2 floor with "utmost determination:. Jordan warned that the bank "won't tolerate any trading below the minimum rate in the relevant interbank market, and this commitment applies at any time, from the moment the market opens in Sydney on Monday to when it closes in New York on Friday." Jordan noted that the move "corrected the over valuation of the franc to some extent, investment planning for export-oriented companies has been facilitated, and the risk of both deflation and severe structural damage to the Swiss economy has been reduced.:

Euro remains steady in range so far, except versus Aussie. Investors are still generally optimistic that Greece would "finally" seal the deals to secure the EUR 130b bailout from EU/IMF and avoid disorderly default when it faces massive bond redemption deadline on March 20. However, the progress remains unsatisfactory. Greece must complete the full package by February 15 to allow complex legal procedures to be completed before March 20. And to have the full package means Greece must itself approve on banking and labor reforms, agree on PSI debt swap deal with private creditors and agree on OSI, official sector involvement. EU leaders have stepped up the pressure on Greece as they, same as the markets, are losing patience. We believe that no news would be taken seriously by the markets until something is confirmed and signed in black and white. Before that, Euro will remain soft.

Aussie jumped sharply today and hit new record high against Euro after RBA unexpected left rates unchanged at 4.25%. The RBA unexpectedly left the cash rate unchanged at 4.25% in February, in contrast with consensus of a rate cut by -25 bps. The decision, in spite of growing uncertainty in the sovereign debt crisis in the Eurozone, indicated policymakers' confidence in China's demand and US' economic recovery. The Australian dollar soared after the announcement. More in RBA Unexpectedly Paused After 2 Successive Rate Cuts.

On the data front, New Zealand labor cost index rose 0.7% qoq in Q4, above expectation of 0.5% qoq. UK BRC sales monitor dropped -0.3% yoy in January. Japan leading indicator improved to 94.3 in December. German industrial production dropped -2.9% mom in December. Canada building permits rose 11.2% mom in December. Fed chairman Bernanke will return to Capitol Hill and testify before Senate Budget Committee on US economic outlook today.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 76.42; (P) 76.61; (R1) 76.73; More....

USD/JPY edges higher to 76.86 as recovery from 76.02 temporary low continues today. Further rebound could be seen to 55 days EMA (now at 77.09) and above. But after all, near term outlook remains bearish as long as 78.28 resistance holds. Whole decline from 79.52 is still in progress. Below 76.02 will resume such fall for a test on 75.56 low.

In the bigger picture, there is no sign of long term trend reversal in USD/JPY yet even though downside momentum is diminishing with bullish convergence condition in weekly MACD. USD/JPY is still trading below the falling 55 weeks EMA. Not to mention that it's far below the falling 55 months EMA. The long term down trend is expected to resume sooner or later with an eventual break of 75.56 low to 70 psychological level. In any case, we'd at least prefer to see sustained break of 55 weeks EMA (now at 79.40) before considering the case of reversal.

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