Daily Pivots: (S1) 1.4132; (P) 1.4192; (R1) 1.4244; More...

EUR/AUD lost downside momentum ahead of 1.4072 low and intraday bias is turned neutral first. At this point, there is no clear indication of resumption of larger decline yet. Above 1.4332 support turned resistance will turn bias back to the upside to extend recent sideway trading. Nonetheless, decisive break of 1.4072 low will extend the correction from 1.6587 towards next key support level 1.3671.

In the bigger picture, price actions from 1.6587 medium term top are viewed as a consolidative pattern. 50% retracement of 1.1602 to 1.6587 at 1.4095 was already met. While further fall cannot be ruled out, we'd expect strong support above 1.3671 to contain downside and bring rebound. Up trend from 1.1602 should not be finished and will resume later. Break of 1.4880 resistance will be the first sign of resumption of up trend from 1.1602 and target retesting of 1.6587 resistance first.

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Daily Pivots: (S1) 1.0720; (P) 1.0730; (R1) 1.0744; More...

Intraday bias in EUR/CHF remains neutral for the moment as it's bounded in range of 1.0677/0762. Below 1.0677 will extend the corrective fall from 1.1198 and target 1.0620 key support level. On the upside, above 1.0762 will turn focus back to 1.0897 resistance. Decisive break there will suggest reversal and turn near term outlook bullish.

In the bigger picture, the decline from 1.1198 is seen as a corrective move. Such correction is still in progress and retest of 38.2% retracement of 0.9771 to 1.1198 at 1.0653 could be seen. Sustained trading below 1.0653 will target 50% retracement at 1.0485. Meanwhile, break of 1.0897 resistance will argue that the larger up trend is finally resuming for above 1.1198.

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Daily Pivots: (S1) 121.45; (P) 121.93; (R1) 122.27; More...

EUR/JPY's fall continues today and the break of 120.90 support indicates near term reversal. That is, the corrective rebound from 109.20 is likely completed at 124.08, ahead of 126.09 key resistance. Intraday bias is now on the downside for 118.45 cluster support (38.2% retracement of 109.20 to 124.08 at 118.39). Sustained break there will target 61.8% retracement at 114.88 and below. On the upside, above 122.41 resistance is needed to indicate completion of the decline. Otherwise, outlook will now stay bearish in case of recovery.

In the bigger picture, price actions from 109.20 medium term bottom are seen as part of a medium term corrective pattern from 149.76. There is prospect of another rise towards 126.09 key resistance level before completion. But even in that case, we'd expect strong resistance between 126.09 and 141.04 to limit upside, at least on first attempt. Sustained trading below 55 day EMA will pave the way to retest 109.20.

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The British Pound drops across the board as the week starts. It's reported that prime minister Theresa May is schedule to deliver a speech on Tuesday to lay out the plan of Brexit. And, May is expected to outline a "hard Brexit" approach. And UK is prepared to withdraw from tariff-free trade relationship with EU, in return for the control of immigration. GBP/USD drops through 1.2036 support and breaches 1.2 handle as recent decline resumes. EUR/GBP also extended recent rebound from 0.8303 and reaches as high as 0.8844. GBP/JPY also drops sharply to as low as 136.94 so far. Sterling's selloff slowed a bit on news that Treasury is going to talk to major banks to smooth market reactions. But the pound remains vulnerable to further decline.

Meanwhile, Dollar recovers mildly today as focus turns to president-elect Donald Trump's inauguration on Friday, January 20. While this would mostly be a ceremonial occasion, Trump could make use of the occasion to outline his priorities and policies on taxes, trade and immigration. The market would also closely watch for comments and announcement from his administration, on issues regarding trades and legislation, in following days. Besides, Fed Chair Janet Yellen will speak on Wednesday and Thursday this week, she might acknowledge the recent solid improvement in job and inflation data.

As for today, UK Rightmove house price index rose 0.4% mom in January. Japan machine orders dropped -5.1% mom in November. Machine tool orders rose 4.4% yoy in December. Domestic CGPI rose 0.6% mom in December. Tertiary industry index rose 0.2% mom in November. Australia TD securities inflation rose 0.5% mom in December. US markets are on holiday today.

Looking ahead, BoC and ECB will meet this week and would likely be non-event. Indeed, ECB just announced to extend the QE until December 2017, but lower the pace to EUR 60b per month from April 2017. There will be a number of key data from UK this week, including CPI and employment. Fed will release Beige Book economic report. Aussie traders will look into employment data and a string of data from China on Friday. Here are some highlights:

• Tuesday: Australia home loans; UK CPI, PPI; German ZEW; US Empire state manufacturing
• Wednesday: German CPI final; UK job; Eurozone CPI final; US CPI, industrial production, NAHB housing index; Fed's Beige Book; BoC rate decision.
• Thursday: Australia employment; Swiss PPI; ECB rate decision; Canada manufacturing sales; US housing starts, Philly Fed survey, jobless claims
• Friday: China GDP; industrial production; fixed asset investment, retail sales; German PPI; UK retail sales; Canada CPI, retail sales

GBP/JPY Daily Outlook

Daily Pivots: (S1) 138.89; (P) 139.73; (R1) 140.39; More...

GBP/JPY's decline from 148.20 accelerated by breaking the channel line decisively. 38.2% retracement of 122.36 to 148.42 at 138.46 was also taken out firmly. The development suggests that whole corrective rise from 122.36 has completed at 148.42. Intraday bias stays on the downside for 61.8% retracement at 132.31 and below. On the upside, break of 142.16 support turned resistance is needed to indicate completion of such decline. Otherwise, outlook will stay bearish in case of recovery.

In the bigger picture, price actions from 122.36 medium term bottom are seen as developing into a corrective pattern. Upside is so far limited by 38.2% retracement of 195.86 to 122.36 at 150.4 for setting the medium term range. At this point, we don't expect a break of 122.36 in near term and the corrective pattern would extend for a while.

Economic Indicators Update

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Daily Pivots: (S1) 138.89; (P) 139.73; (R1) 140.39; More...

GBP/JPY's decline from 148.20 accelerated by breaking the channel line decisively. 38.2% retracement of 122.36 to 148.42 at 138.46 was also taken out firmly. The development suggests that whole corrective rise from 122.36 has completed at 148.42. Intraday bias stays on the downside for 61.8% retracement at 132.31 and below. On the upside, break of 142.16 support turned resistance is needed to indicate completion of such decline. Otherwise, outlook will stay bearish in case of recovery.

In the bigger picture, price actions from 122.36 medium term bottom are seen as developing into a corrective pattern. Upside is so far limited by 38.2% retracement of 195.86 to 122.36 at 150.4 for setting the medium term range. At this point, we don't expect a break of 122.36 in near term and the corrective pattern would extend for a while.

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Recent correction does not change our relatively positive outlook over USDJPY this year. Donald Trump's victory at the US presidential election last November triggered sharp rally in interest rates and USD, facilitated by unwinding of USD shorts and opening of USD longs. Despite a pullback after soaring to a recent high 118.66 in mid-December, reflation trades, hinging on the bets that Trump's administration would drive quicker growth and inflation, remain in play and should push USDJPY higher after consolidation. Yield curve targeting announced in September indicates that BOJ would strive to keep the 10-year JGB yields close to its target by buying sufficient amounts of bonds. This, together with the sharp rise in US yields, helps accelerate divergence of Japanese yields from those in the US, pressuring Japanese yen. We do not feel surprised if prices corrects to 110-112 in 1Q17. Rather, it offers a buying opportunity for a resumption of recent rally. Risk to USDJPY's strength is slower-than-expected and/or milder-than-expected implementation of Trump's pro-growth policy.

BOJ's Shift to Yield Curve Control. In September, BOJ announced a policy called “QQE with Yield Curve Control”, effectively shifting its monetary stimulus from money supply expansion to interest rate control. As mentioned in the accompanying statement, the new policy framework consists of two major components, namely, 'yield curve control' in which the Bank will control short-term and long-term interest rates, and 'inflation-overshooting commitment' in which the Bank commits itself to expanding the monetary base until the year-on-year rate of increase in the observed consumer price index (CPI) exceeds the price stability target of 2% and stays above the target in a stable manner. For “yield curve control”, BOJ noted that it would purchase JGBs so that 10-year JGB yields would remain around 0%. The purchases would be conducted more or less in line with the current pace, an annual pace of increase in the amount outstanding of its JGB holdings at about 80 trillion yen. BOJ also noted that JGBs with a wide range of maturities would continue to be eligible for purchase, while the guideline for average remaining maturity of the Bank's JGB purchases will be abolished. For short term rate, BOJ would apply a -0.1% rate to the Policy-Rate Balances in current accounts held by financial institutions at BOJ. In a nutshell, BOJ would strive keep its 10-year government bond yield at 0%, in contrast with usual central bank practice of controlling only short-term rates.

The chart below shows that USDJPY has been highly correlated with US-Japan 10-year yield spreads, over the past months. Hopes that Trump's pro-growth policy would drive higher economic expansion and inflation, and facilitate a tighter monetary policy stance, have lifted Treasury yields and USD of late. With the market shy of pricing in three Fed funds rate hikes (as signaled in the December dot plot) this year, there is room for USD to rally further should incoming macroeconomic data eventually convince traders that more rate hikes are possible. Fed's hawkish and BOJ's determination to keep long-term yields near 0% reveal monetary policy divergence and help widening yield differential, a factor facilitating the rise of USDJPY

Oil Price and Inflation Outlook:

Energy price contributes to about 7% of US headline inflation. Yet, the correlation of the two can be as higher as 0.96, say, in October. The synchronized decline in USDJPY and crude oil prices over the past weeks is not coincidental, but driven by diminished inflation expectations amidst falling oil prices. If crude oil prices manage to extend gains as driven by tightening of global demand/supply fundamentals this year, inflation expectations, and therefore yields, should climb higher, and vice versa.

Japan's inflation expectations have remained subdued. BOJ's December survey shows that only 64.7% of the respondents forecast consumer price to rising this year. This marks a drop from 65.1 in the previous quarter and the lowest since 4Q12. As noted in the December monetary statement, BOJ acknowledged that the year-on-year CPI (CPI, all items less fresh food) has been “slightly negative” and that “inflation expectations have remained in a weakening phase”. The central bank continued to expect inflation to increase towards its 2% target eventually. While BOJ upgraded its economic assessment, the Cabinet Office released the upgraded estimates in December. It now expects real GDP to grow +1.5% in the next fiscal year starting April 1, up from +1.2% previously. Inflation would was revised lower to +1.1% from +1.4% previously. The Cabinet Office also unveiled that the government's initial budget for next year would increase to 97.5 trillion yen. Weakness in Japanese yen would raise import price while higher oil price might help lift inflation, we expect to stay far below BOJ's +2% target. This suggests that BOJ would at least maintain the existing stimulus measures, i.e. keeping interest rates, both long term and short term, at exceptionally low levels.

Dollar ended the week broadly lower, except versus Sterling, after US president-elect Donald Trump disappointed the markets by not giving any details on his policies during the first post election press conference. Dollar index reached as low as 100.72 before recovering to close at 101.18. Meanwhile, the greenback also took out key near term support level against Euro, Yen and Canadian Dollar, which carries some bearish implications. However, treasury yields staged a strong rebound on Friday, which could provide some relieves to Dollar bullish. 10 year yield closed at 2.380, after dipping to as low as 2.309, comparing to prior week's close at 2.418. Stocks were also resilient with NASDAQ closing a fresh record of 5574.12. DJIA stayed in tight range of around 200 pts. below 20000 handle. There are still prospects for the greenback to strike back is Trump delivers in his inauguration on January 20.

Technically, Dollar index's correction from 103.82 extended lower last week and breached 55 day EMA (now at 101.04), and 38.2% retracement of 95.88 to 103.82 at 100.79. Such decline is still seen as a near term corrective pull back only. And hence, strong support should be seen at 100.79 fibonacci level and bring rebound. A break above 102.95 resistance will turn focus back to 103.82. However, considering bearish divergence condition in daily MACD, sustained break of 100.79 will argue that whole rise from 91.91 is also finished . And in that case, deeper fall should be seen to 99.43 support and below.

10 year yield seems to be losing some downside momentum ahead of 55 day EMA (now at 2.281). Immediate focus will be on 2.432 minor resistance this week. Break there would possibly bring retest of 2.621 resistance. At this point, we don't expect an upside breakout yet and more consolidation would be seen. Meanwhile, below 55 day EMA will likely extend the correction lower to 38.2% retracement of 1.336 to 2.621 at 2.130.

S&P 500 lost much momentum as it faces resistance from upper channel line. Nonetheless, SPX is holding well above 2233.62 key near term support level. Hence, the rise fro 2083.79 is still intact. Such rise is still expected to continue to next medium term projection level at 61.8% projection of 1074.77 to 2134.71 from 1810.10 at 2465.14. But a break of 2233.62 will bring deeper fall to lower channel line (now at 2128).

Hence to conclude, which the greenback was down, it isn't out yet. Resilience in stocks and yields would provide support to Dollar in general. But Dollar's fate will heavily depend on whether Trump would turn his words into actions. Regarding trading strategies, our positives were both stopped by the unexpected weakness in Dollar. We will keeps our hands off this week and see whether the greenback is in genuine trend reversal, or it's just a blip.

EUR/USD Weekly Outlook

EUR/USD's rebound from 1.0339 extended higher last week. Break of 1.0652 resistance indicates bottoming. Initial bias stays mildly on the upside this week for 1.0872 resistance and possibly above. On the downside, below 1.0453 minor support will turn bias back to the downside for 1.0339 support. Break there will extend the larger down trend towards parity.

In the bigger picture, whole down trend from 1.6039 (2008 high) is in progress. Such down trend is expected to extend to 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. On the upside, break of 1.1298 resistance is needed to confirm medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.

In the long term picture, the down trend from 1.6039 (2008 high) is still in progress and there is no clear sign of completion. We'd expect more downside towards 0.8223 (2000 low) as long as 1.1298 resistance holds.

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EUR/USD's rebound from 1.0339 extended higher last week. Break of 1.0652 resistance indicates bottoming. Initial bias stays mildly on the upside this week for 1.0872 resistance and possibly above. On the downside, below 1.0453 minor support will turn bias back to the downside for 1.0339 support. Break there will extend the larger down trend towards parity.

In the bigger picture, whole down trend from 1.6039 (2008 high) is in progress. Such down trend is expected to extend to 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. On the upside, break of 1.1298 resistance is needed to confirm medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.

In the long term picture, the down trend from 1.6039 (2008 high) is still in progress and there is no clear sign of completion. We'd expect more downside towards 0.8223 (2000 low) as long as 1.1298 resistance holds.

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USD/JPY's fall last week confirmed topping at 118.65. Price actions from there is expected to develop into a corrective pattern. Deeper fall is expected as long as 116.86 resistance holds to 38.2% retracement of 98.97 to 118.65 at 111.13. At this point, we'd expect strong support from there to contain downside and bring rebound. Above 116.86 minor resistance will turn bias to the upside for 118.65 high. However, sustained break of 111.13 will argue that whole rise from 98.97 has completed and bring deeper fall to 61.8% retracement at 106.48 and below.

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.

In the long term picture, the rise from 75.56 long term bottom to 125.85 medium term top is viewed as an impulsive move. Price actions from 125.85 are seen as a corrective move which could still extend. But, up trend from 75.56 is expected to resume at a later stage for above 135.20/147.68 resistance zone.

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GBP/USD dipped to as low as 1.2036 last week but recovered since then. Initial bias stays neutral this week first. Deeper fall is still expected as long as 1.2432 resistance holds. Below 1.2036 will target a test on 1.1946 low. Decisive break there will confirm our bearish view and resume the larger down trend. However, break of 1.2432 will suggest that consolidation pattern from 1.1946 is extending with another rise.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term bottoming yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

In the longer term picture, no change in the view that down trend from 2.1161 is still in progress. Current momentum suggests that the down trend will go deeper than originally expected.

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