Mid-Day Report: Sentiments Firm Greek Optimism, Yen Lower on Shirakawa

Market sentiments are generally firm on optimism that Greek's EUR 130b second bailout would be concluded next Monday. Italian prime ministers Monti's office said in a statement that Monti himself, German Merkel and Greek Papademos shared such optimism. Regarding the role of ECB, markets are speculating that the bank would swap it's Greek bonds for news ones with identical structure and nominal value so that it's won't be forced to take losses in the debt restructuring.

BoJ Governor Shirakawa pledged that the bank would continue with "powerful monetary easing". Shirakawa described BoJ's framework as inflation targeting, similar to that of Fed. And at this point, he saw the inflation target of 1%, as the trigger to tighten up, a long way off, even though he thought Japan is moving towards and end to deflation. Note that Fed has already pledged to keep rates at historical low till 2014 and markets are expecting BoJ to follow. The Japanese yen has already experienced some steep sell off after BoJ unexpectedly boosted the quantitative easing program earlier this week. Further decline was seen on a couple of factors, including return of risk appetite.

On the data front, German PPI rose 0.6% mom, 3.4% yoy in January, above expectation of 0.2% mom, 3.1% yoy. UK retail sales dropped -0.9% mom in January but rose -2.0% yoy. Canada CPI unexpectedly accelerated to 2.5% yoy in January, core CPI also jumped to 2.1% yoy. Leading indicators rose 0.7% in January. From US, CPI slowed less than expected to 2.9% yoy in January while core CPI dropped to 2.1% yoy.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 78.54; (P) 78.75; (R1) 79.14; More...

USD/JPY's rally is still in progress and reaches as high as 79.36 so far in early US session. Intraday bias is still on the upside for 79.52 resistance and then 100% projection of 75.56 to 79.52 from 76.02 at 79.98. On the downside below 78.78 minor support will turn bias neutral and bring consolidations first before staging another rise.

In the bigger picture, the case of long term reversal is starting to build up as USD/JPY is trading above the long term falling channel that started at 2007 high of 124.13. As noted before, bullish convergence condition is present in weekly MACD for some time already. A strong break above 79.52 resistance will at least confirm that 75.56 is a medium term bottom and should bring stronger rally back to 85.51 resistance next. We'll continue to assess the odds of trend reversal as the rise from 75.56 extends.

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