Risk appetite extends to Asian markets, following the records close in US last week. At the time of writing, Japan Nikkei is trading up 98 pts or 0.5%, HK HSI is up 120 pts or 0.5%. Yen trades broadly lower on risk appetite, together with Swiss Franc. On the other hand, Sterling and Dollar are trading mildly higher. In other markets, Gold dips back to 1230 on Dollar strength and it looks like recent pull back from 1246.6 would extend lower. WTI crude oil is still bounded in range of 50.8/55.3, without any direction. Released in Asian session, Japan Q4 GDP rose 0.2% qoq, below expectation of 0.3% qoq. GDP deflator dropped -0.1% yoy, above expectation of -0.2% yoy.

IMF Lagarde Optimistic on US…

IMF chief Christine Lagarde said on Sunday that "from the little we know", and "the little we hear", there are "reasons to be optimistic" about the US economy. She noted that "it is likely that there will be tax reform, it is likely there will be additional investment in infrastructure and as a result of that it is very likely that growth will be up in the US." However, she also warned of the effect of higher US interest rate and strong Dollar. She said that "currency higher, interest rate higher – that is a tightening that is going to be difficult on the global economy and for which economies have to prepare." Back in January, IMF raised US growth forecast to 2.3% in 2017 and 2.5% in 2018.

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…but worried about Europe

On the other hand, Lagarde expressed her worries "about some of these elections" in Europe, including France, the Netherlands and Germany. Nonetheless, she sounded calm as she noted that win of populist candidates might not be totally negative. She pointed to Italy and Greece as examples. Lagarde noted that when "Matteo Renzi" was elected as Italian prime minister back in 2014, " everyone thought ‘oh my god, what is going to happen with this maverick?’" But then, Renzi’s administration was "not much mavericking". meanwhile, after Alexis Tsipras’s win in Greece in 2015, it has been "difficult" and "laborious" dealing with Greece but "changes are taking place".

Fed Yellen to Highlight the Week

Looking ahead, Fed chair Janet Yellen’s semiannual testimony to Congress is the main focus of the week. Yellen will testify before the Senate on Tuesday and the House on Wednesday. Markets would look for signals on any change on Fed’s forecasts of three rate hike this year. Some might also want to get hints on chance of March high. However, based on uncertainties over the fiscal policies Trump would adopt, it’s likely that Yellen would sound non-committal. As of Friday, fed fund futures are pricing in 13.3% chance of March hike, and 67.3% chance of hike by June.

Here are some highlights for the week ahead:

  • Tuesday: Australia NAB business confidence; China CPI, PPI; German GDP, CPI final, ZEW; Italy GDP; Eurozone ZEW, industrial production; Swiss CPI, PPI; UK CPI, PPI; US PPI
  • Wednesday: UK employment; Eurozone trade balance; US CPI, retail sales, Empire state manufacturing, industrial production, business inventories, NAHB housing index
  • Thursday: Australia employment; ECB monetary policy accounts; US housing starts and building permits, jobless claims, Philly Fed survey
  • Friday: New Zealand retail sales; Eurozone current account; UK retail sales; Canada foreign securities purchases; US leading indicator

USD/JPY Daily Outlook

Daily Pivots: (S1) 112.72; (P) 113.28; (R1) 113.73; More…

USD/JPY’s rebound from 111.58 extends to as high as 114.16 so far today. As noted before, correction from 118.65 should have completed at 111.58, on bullish convergence condition in 4 hour MACD. Intraday bias stays cautiously on the upside for 115.36 resistance. Break will confirm this bullish case and target 118.65 high next. In that case, the larger rally from 98.97 could be resuming. On the downside, below 112.85 minor support will dampen this bullish view and could extend the correction from 118.65. In that case, downside should be contained by 38.2% retracement of 98.97 to 118.65 at 111.13 and bring rebound.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. The impulsive structure of the rise from 98.97 suggests that the correction is completed and larger up trend is resuming. Decisive break of 125.85 will confirm and target 61.8% projection of 75.56 to 125.85 from 98.97 at 130.04 and then 135.20 long term resistance. Rejection from 125.85 and below will extend the consolidation with another falling leg before up trend resumption.

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised
23:50 JPY GDP Q/Q Q4 P 0.20% 0.30% 0.30%
23:50 JPY GDP Deflator Y/Y Q4 P -0.10% -0.20% -0.20%
7:00 EUR German Wholesale Price Index M/M Jan 0.30% 1.20%
10:00 EUR European Commission Economic Forecasts

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