Sun, Dec 04, 2022 @ 15:03 GMT
HomeAction InsightMarket OverviewUSD/JPY in Unstoppable Rally, Focus Turns to BoC

USD/JPY in Unstoppable Rally, Focus Turns to BoC

Dollar is trading broadly higher in Asian session today, as supported by extended rally in US treasury yield. For the same reason, Yen tumbles broadly this week, and the decline is extending. The net result is that USD/JPY reached a new 24-year high and still looks unstoppable. Canadian Dollar is trading with a mixed tone for now, but hopefully, BoC rate decision today will give the Loonie a clear direction to follow.

Technically, downside momentum in EUR/USD is far from convincing for now even though 0.9899 support was broken earlier in the week. Euro bears would probably need to wait for clearing ECB risk first, before jumping in. There is prospect of downside acceleration in EUR/USD if 61.8% projection of 1.0773 to 0.9951 from 1.0368 at 0.9860 if taken out decisively. Next target at 100% projection at 0.9546 could be reached quickly if that happens.

In Asia, at the time of writing, Nikkei is down -0.81%. Hong Kong HSI is down -1.80%. China Shanghai SSE is down -0.05%. Singapore Strait Times is down -0.30%. Japan 10-year JGB yield is up 0.0048 at 0.246. Overnight, DOW dropped -0.55%. S&P 500 dropped -0.41%. NASDAQ dropped -0.74%. 10-year yield rose 0.147 to 3.340.

Japan officials concerned by one-sided move in Yen, warned of necessary action

As Yen tumbles further to fresh 24-year low against Dollar, Japan Finance Minister Shunichi Suzuki  cautioned that “recent moves are rather rapid and one-sided . We need to be watching developments with strong interest.”

Chief Cabinet Secretary Hirokazu Matsuno said at a news briefing, “I’m concerned about rapid, one-sided moves in the currency market recently. If such moves continue, we will take necessary action.”

Australia GDP grew 0.9% qoq in Q2, driven by household spending and exports

Australia GDP grew 0.9% qoq in Q2, matched expectations. Household spending rose 2.2% for the quarter, contributing 1.1% pts to GDP. Net trade contributed 1.0% pts to GDP, driven by exports which rose 5.5%, partially offset by 0.7% rise in imports. Terms of trade rose 4.6% with export and import prices up strongly.

Sean Crick, head of National Accounts at the ABS, said: “Rises in household spending and exports drove growth in the June quarter. This is the third consecutive quarter of economic growth, following a contraction in the September quarter 2021, which was impacted by the Delta outbreak.”

Australia AiG services rose to 53.3, businesses highlight interest rate as concern

Australia AiG Performance of Services Index rose 1.6 pts to 53.3 in August. Looking at some details, sales rose 2.6 to 51.9. Employment rose 0.8 to 53.2. New orders rose 6.7 to 57.3. Input prices dropped -5.6 to 68.7. Selling prices dropped -2.2 to 61.2. Average waged dropped -1.3 to 67.6.

Innes Willox, Chief Executive of Ai Group, said: “Services remained in expansion in August, pointing to the overall resilience of the sector with sales, employment and new orders all higher than in July…. Price and wages pressures continued into August although the pace of increase in input prices eased somewhat. With service businesses highlighting interest rates as a key area of concern, the Reserve Bank’s decision yesterday to raise the cash rate by another 50 basis points to 2.35% will further fuel their fears of a fall in spending in the months ahead.”

BoC to hike, AUD/CAD ready for down trend resumption

BoC rate decision is the main focus for today. Markets are expecting a 75bps rate hike to 3.25%. But that’s far from being certain. With current interest rate at 2.50% already in neutral range, there are talks that BoC could opt for a smaller hike of 50bps. Yet, there are also arguments for a larger 100bps hike today, followed by a pause. Some wildcard potential is there.

Some previews on BoC:

AUD/CAD is making some progress in breaking through 0.8875 minor support this week. The development suggests that corrective rebound from 0.8733 has completed at 0.9104, and larger down trend is ready to resume. Retest of 0.8733 low should be seen first. Decisive break there will confirm this bearish view and target 61.8% projection of 0.9514 to 0.8733 from 0.9104 at 0.8621. However, break of 0.8949 minor resistance, in reaction to BoC, will mix up the outlook.

Elsewhere

Germany industrial production, Swiss foreign currency reserves, Italy retail sales and Eurozone GDP revision will be released in European session. Later in the day, US and Canada will release trade balance.

USD/JPY Daily Outlook

Daily Pivots: (S1) 141.01; (P) 142.04; (R1) 143.83; More…

USD/JPY accelerates to as high as 144.37 so far today as up trend continues. 100% projection of 126.35 to 139.37 from 130.38 at 143.40 is already met but there is no sign of topping yet. Intraday bias stays on the upside for 147.68 long term resistance next. On the downside, break of 140.24 minor support is needed to indicate short term topping. Otherwise, outlook will remain bullish in case of retreat.

In the bigger picture, up trend from 101.18 is still in progress, as part of the whole up trend from 75.56 (2011 low). Further rise should be seen to 147.68 (1998 high). For now, break of 130.38 support is needed to be the first indication of medium term topping. Otherwise, outlook will stay bullish even in case of deep pull back.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
22:30 AUD AiG Performance of Services Index Aug 53.3 51.7
01:30 AUD GDP Q/Q Q2 0.90% 0.90% 0.80%
02:00 CNY Trade Balance (USD) Aug 79.4B 91.8B 101.3B
02:00 CNY Exports (USD) Y/Y Jul 7.10% 18.00%
02:00 CNY Imports (USD) Y/Y Aug 0.30% 2.30%
02:00 CNY Trade Balance (CNY) Aug 536B 650B 683B
02:00 CNY Exports (CNY) Y/Y Aug 11.80% 23.90%
02:00 CNY Imports (CNY) Y/Y Aug 4.60% 7.40%
05:00 JPY Leading Economic Index Jul P 99.60% 100.7 100.9
06:00 EUR Germany Industrial Production M/M Jul -0.50% 0.40%
07:00 CHF Foreign Currency Reserves (CHF) Aug 849B
08:00 EUR Italy Retail Sales M/M Jul 0.20% -1.10%
09:00 EUR Eurozone GDP Q/Q Q2 0.60% 0.60%
09:00 EUR Eurozone Employment Change Q/Q Q2 F 0.30% 0.30%
12:30 USD Trade Balance (USD) Jul -70.2B -79.6B
12:30 CAD International Merchandise Trade Jul $5.05B
14:00 CAD BoC Interest Rate Decision 3.25% 2.50%
14:00 CAD Ivey PMI Aug 48.3 49.6
18:00 USD Fed’s Beige Book

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