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Daily Pivots: (S1) 107.73; (P) 108.37; (R1) 108.76; More..

Break of 108.20 minor support suggests that USD/JPY's corrective rebound form 104.69 short term bottom has completed at 109.08 already. Intraday bias is turned back to the downside for retesting 104.69 low first. In case of another recovery, upside should be limited 109.46 minor resistance. Overall, larger downtrend from 118.65 (2016 high) is expected to resume finally through 104.62 after current consolidation from 104.69 completes.

In the bigger picture, price actions from 125.85 (2015 high) are seen as a long term corrective pattern, no change in this view. Apparently, such corrective pattern is not completed yet. Fall from 114.54 is seen as part of the falling leg from 118.65 (2016 high). Break of 104.62 will target 100% projection of 118.65 to 104.62 from 114.54 at 100.51, which is close to 100 psychological level. But in that case, we'd expect strong support from 98.97 to contain downside to bring reversal. Also, this bearish case will remain the preferred one as long as 114.54 resistance holds.

For the 24 hours to 23:00 GMT, the GBP rose 0.50% against the USD and closed at 1.2799.

Data indicated that, UK's BRC sales like-for-like dropped 0.7% on an annual basis in December, compared to a decline of 0.5% in the previous month. Market participants had anticipated retail sales across all sectors to register a fall of 0.3%.

In the Asian session, at GMT0400, the pair is trading at 1.2791, with the GBP trading 0.06% lower against the USD from yesterday's close.

The pair is expected to find support at 1.2737, and a fall through could take it to the next support level of 1.2682. The pair is expected to find its first resistance at 1.2825, and a rise through could take it to the next resistance level of 1.2858.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

Dollar is turning mixed in Asian session today, but it remains the weakest one for the week. The greenback was knocked down by a wave of cautious comments from Fed officials, as well as the FOMC minutes. In short, Fed could be "patient" before making another rate move. And this is actually inline with market pricing that Fed will not raise interest rates again this year. The deadlock over US government shutdown is another factor weighing on Dollar. Trump stormed out of the talks with Democrat leaders of the Congress yesterday and complained the meeting at the White House was a "total waste of time".

Elsewhere in the currency markets, Canadian Dollar is the weakest one for today after yesterday's BoC rate decision. BoC stood pat and lowered 2019 growth and inflation forecast. New Zealand Dollar follows as second weakest, then Sterling. Australian Dollar is so far the strongest one for today, followed by Yen, and then Swiss Franc.

In other markets, DOW closed up 0.39% overnight. S&P 500 rose 0.41% while NASDAQ added 0.87%. 30-year yield rose 0.031 to 3.024, above 3% handle. 10-year yield rose 0.012 to 2.728. But 5-year yield dropped -0.012 to 2.599. Strength at the long end will be welcomed by Fed policy makers. But yield curve remains inverted from 1-year (2.602) to 2-year (2.561) to 3-year(2.533).

In Asia, markets are mixed. Nikkei closed down -1.34%. Hong Kong HSI is currently up 0.12%, China Shanghai SSE is up 0.06%. Singapore Strait Times is up 0.51%. Japan 10-year JGB yield is down -0.0015 at 0.029 but stays positive.

Fed officials want patience and clarity before hiking rates again

Comments from Fed officials yesterday were generally cautious in tone. And it seems there is consensus that Fed should be "patient" before making another rate hike. Boston Fed President Eric Rosengren said "there should be no particular bias toward raising or lowering rates until the data more clearly indicate the path for domestic and international economic growth". And he added "I believe we can wait for greater clarity before adjusting policy."

Chicago Fed President Charles Evans said "because inflation is not showing any meaningful sign of heading above 2 percent…I feel we have good capacity to wait and carefully take stock of the incoming data and other developments". Atlanta Fed President Raphael Bostic said "the appropriate response is to be patient in adjusting the stance of policy and to wait for greater clarity about the direction of the economy and the risks to the outlook"

FOMC minutes of the December meeting also reflected the cautious tone. They noted that "many participants expressed the view that, especially in an environment of muted inflation pressures, the committee could afford to be patient about further policy firming."Also "a number of participants noted that, before making further changes to the stance of policy, it was important for the committee to assess factors," including risks on growth and the impact of past rate hikes on the economy.

Summary of statements from China MOFCOM and USTR on trade talks

In a relatively brief statement, the Chinese Ministry of Commerce said the trade talks with the US this week were extensive and laid down the foundation for resolving trade friction between the countries. The MOFCOM statement said "The two sides actively implemented the important consensus of the two heads of state and conducted extensive, in-depth and meticulous exchanges on trade issues and structural issues of common concern, which enhanced mutual understanding and laid the foundation for resolving mutual concerns. Both parties agreed to continue to maintain close contact."

In a rather neutral statement, the US Trade Representative detailed the discussions with China in Beijing on January 7-9. Here are what were discussed "ways to achieve fairness, reciprocity, and balance in trade relations", "ongoing verification and effective enforcement" of the agreement, "achieving needed structural changes in China". Also, China's pledge to purchase a substantial amount of agricultural, energy, manufactured goods, and other products and services were also discussed.

EU Trade Commissioner Malmström insists on excluding agriculture in trade negotiation with US

EU Trade Commissioner Cecilia Malmström told reporters yesterday that the scope of trade negotiation with the US was not agreed upon yet. But she emphasized that "we have made very clear agriculture will not be included." In the mean time, EU also haven't got assurance from the US on holding off auto tariffs during the trade negotiation. But Malmström believed EU won't be affected while talks were ongoing.

Malmström made the comments after meeting Japanese Minister of the Economy Hiroshige Seko and U.S. Trade Representative Robert Lighthizer in Washington yesterday, in preparation for another meeting later this week regarding WTO reforms.

European Commission is currently preparing two mandates for trade negotiations with the US. One is for removal of tariffs of industrial goods. Another one is on areas of possible regulatory cooperation in areas such as pharmaceuticals, medical devices and cyber security. The mandates will first have to go through European Commission approval, and then the 28 members of EU states. There is no set time line for the preparation yet.

Separately, Republican Senator Chuck Grassley warned that "I don't know how anybody in Europe that wants a free trade agreement with us can expect it to get through the US Senate if you don't want to negotiate agriculture."

UK Hammond: No specific benefits in the current Brexit deal, just much worse with no-deal

Chancellor of the Exchequer Philip Hammond said "I firmly believe that my job is to look after the welfare and interests of the British people and I conclude that it would not be in their interests to leave without a deal". "We are very determined that we need a deal. We need a deal that allows us to continue to cooperate and to have a smooth and orderly exit and we'll make sure that we do."

He urged that "What we and many other British businesses need most urgently, is for politicians from all sides to come together and pass a pragmatic agreement that allows an orderly Brexit". Though, he added that "We don't see any specific benefits in the current deal. It's just a lot less bad than a 'no deal'".

But as five-day debate over UK Prime Minister Theresa May's Brexit deal began in the parliament yesterday, there is apparently no breakthrough. Hammond said there is currently no "plan B" to break the deadlock.

BoC stood pat, downgraded 2019 growth forecasts on temporary factors

BOC left the policy rate unchanged at 1.75% in January. Policymakers admitted that the decline in oil price has "material" impact on the economy. Yet, they viewed the impact as transitory. Reflecting the view on economy projections, the central bank downgraded the GDP growth forecast for this year, but upgraded it for the next year. Similarly, inflation is trimmed for this year due to weakness in oil prices.

On the monetary policy stance, BOC retained the view that interest rates would "need to rise" and the decision would be data-dependent. Yet, this time the central bank added that a rate hike would come "over time" and the pace would highly depend on "developments in oil markets, the Canadian housing market, and global trade policy".

More in BOC Pushed Back Timing for Next Rate Hike, Trimmed GDP Growth and Inflation Forecasts for 2019

On the data front

UK BRC retail sales monitor dropped -0.7% yoy in December versus expectation of -0.3% yoy. China CPI slowed to 1.9% yoy in December, down from 2.2% yoy and missed expectation of 2.1% yoy. PPI slowed to 0.9% yoy, down from 2.7% yoy and missed expectation of 1.6% yoy. Japan leading index dropped 0.3 to 99.3 in November.

Looking ahead, US jobless claims, Canada new housing price index and building permits will be released.

USD/JPY Daily Outlook

Daily Pivots: (S1) 107.73; (P) 108.37; (R1) 108.76; More..

Break of 108.20 minor support suggests that USD/JPY's corrective rebound form 104.69 short term bottom has completed at 109.08 already. Intraday bias is turned back to the downside for retesting 104.69 low first. In case of another recovery, upside should be limited 109.46 minor resistance. Overall, larger downtrend from 118.65 (2016 high) is expected to resume finally through 104.62 after current consolidation from 104.69 completes.

In the bigger picture, price actions from 125.85 (2015 high) are seen as a long term corrective pattern, no change in this view. Apparently, such corrective pattern is not completed yet. Fall from 114.54 is seen as part of the falling leg from 118.65 (2016 high). Break of 104.62 will target 100% projection of 118.65 to 104.62 from 114.54 at 100.51, which is close to 100 psychological level. But in that case, we'd expect strong support from 98.97 to contain downside to bring reversal. Also, this bearish case will remain the preferred one as long as 114.54 resistance holds.

Economic Indicators Update

For the 24 hours to 23:00 GMT, the USD declined 0.69% against the JPY and closed at 108.16.

Macroeconomic data showed that Japan's flash leading economic index unexpectedly eased to a level of 99.3 in November, compared to a reading of 99.6 in the previous month. Market participants had envisaged the index to record a steady reading. Moreover, the nation's flash coincident index fell to a level of 103.0 in November, meeting market expectations. In the prior month, the index had registered a reading of 104.9.

In the Asian session, at GMT0400, the pair is trading at 107.87, with the USD trading 0.27% lower against the JPY from yesterday's close.

The pair is expected to find support at 107.46, and a fall through could take it to the next support level of 107.06. The pair is expected to find its first resistance at 108.63, and a rise through could take it to the next resistance level of 109.40.

Going forward, investors would closely monitor Japan's trade balance (BoP basis) and overall household spending, both for November, set to release overnight.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD declined 0.79% against the CHF and closed at 0.9738.

In economic news, Switzerland's consumer price inflation (CPI) slowed to a 10-month low level of 0.7% on an annual basis in December, following a gain of 0.9% in the prior month. Market participants had anticipated the CPI to climb 0.8%.

In the Asian session, at GMT0400, the pair is trading at 0.9721, with the USD trading 0.17% lower against the CHF from yesterday's close.

The pair is expected to find support at 0.9685, and a fall through could take it to the next support level of 0.9650. The pair is expected to find its first resistance at 0.9787, and a rise through could take it to the next resistance level of 0.9854.

Looking forward, investors would await Switzerland's unemployment rate for December, slated to release in a while.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD declined 0.20% against the CAD and closed at 1.3208.

Data revealed that Canada’s seasonally adjusted housing starts fell to a level of 213.4K in December, compared to market anticipations for a drop to a level of 205.5K. In the prior month, housing starts had recorded a revised level of 224.3K.

The Bank of Canada, in its monetary policy meeting, opted to leave its key interest rate unchanged at 1.75%, as widely expected. However, the central bank lowered its 2019 growth outlook to 1.7% from 2.1%, signalling a slower expansion in the economy.

In the Asian session, at GMT0400, the pair is trading at 1.3227, with the USD trading 0.14% higher against the CAD from yesterday’s close.

The pair is expected to find support at 1.3189, and a fall through could take it to the next support level of 1.3150. The pair is expected to find its first resistance at 1.3257, and a rise through could take it to the next resistance level of 1.3286.

Trading trend in the Loonie today is expected to be determined by Canada’s new housing price index and building permits, both for November, set to release later in the day.

The currency pair is showing convergence with its 20 Hr moving average and trading below its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the AUD rose 0.20% against the USD and closed at 0.7173.

LME Copper prices rose 1.0% or $59.5/MT to $5964.0/MT. Aluminium prices rose 0.3% or $5.0/MT to $1842.0/MT.

In the Asian session, at GMT0400, the pair is trading at 0.7182, with the AUD trading 0.13% higher against the USD from yesterday’s close.

Elsewhere in China, Australia’s largest trading partner, the consumer price index (CPI) rose 1.9% on an annual basis in December, falling short of market expectations for an advance of 2.1%. In the prior month, the CPI had climbed 2.2%. Moreover, the nation’s producer price index (PPI) climbed 0.9% on a yearly basis in December, compared to market consensus for a gain of 1.6%. The PPI had recorded a rise of 2.7% in the previous month.

The pair is expected to find support at 0.7154, and a fall through could take it to the next support level of 0.7126. The pair is expected to find its first resistance at 0.7202, and a rise through could take it to the next resistance level of 0.7222.

Moving ahead, investors would closely monitor Australia’s AiG performance of construction index for December, scheduled to release late tonight.

The currency pair is showing convergence with its 20 Hr moving average and trading above its 50 Hr moving average.

For the 24 hours to 23:00 GMT, Gold rose 0.75% against the USD and closed at USD1294.70 per ounce, amid broad weakness in the US dollar.

In the Asian session, at GMT0400, the pair is trading at 1297.80, with gold trading 0.24% higher against the USD from yesterday’s close.

The pair is expected to find support at 1286.47, and a fall through could take it to the next support level of 1275.13. The pair is expected to find its first resistance at 1303.57, and a rise through could take it to the next resistance level of 1309.33.

The yellow metal is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, Silver rose 0.45% against the USD and closed at USD15.79 per ounce, tracking gains in gold prices.

In the Asian session, at GMT0400, the pair is trading at 15.82, with silver trading 0.16% higher against the USD from yesterday’s close.

The pair is expected to find support at 15.69, and a fall through could take it to the next support level of 15.56. The pair is expected to find its first resistance at 15.88, and a rise through could take it to the next resistance level of 15.95.

The white metal is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, Crude Oil rose 3.33% against the USD and closed at USD52.16 per barrel, amid continued optimism over US-China trade negotiations and after the Energy Information Administration (EIA) report indicated that US crude oil stockpiles fell by 1.7 million barrels to 439.7 million in the week ended 04 January 2019. Additionally, a report showed that OPEC oil production fell by 630,000 bls a day to a six-month low of 32.43mn bls in December.

In the Asian session, at GMT0400, the pair is trading at 51.91, with oil trading 0.48% lower against the USD from yesterday’s close.

The pair is expected to find support at 50.53, and a fall through could take it to the next support level of 49.14. The pair is expected to find its first resistance at 52.94, and a rise through could take it to the next resistance level of 53.96.

Crude oil is trading above its 20 Hr and 50 Hr moving averages.