Yen Stays Weak in Quiet Start, G20 Shrugged

Yen stays weak in an otherwise quiet start to the week. G20 meeting didn’t give impact to the markets. Global leaders pledge to continue to "fight protectionism including all unfair trade practices" and "recognize the role of legitimate trade defense instruments in this regard." While leaders have taken note of US’s withdrawal from the climate accord, all but US "agree that the Paris Agreement" is irreversible. Regarding migration, G20 somewhat toughen up and said that "we emphasize the sovereign right of states to manage and control their borders and in this regard to establish policies in their own national interests and national security, as well as the importance that repatriation and reintegration of migrants who are not eligible to remain be safe and humane."

BoJ offered another upbeat assessment on economy

In a BoJ quarterly report, the central bank upgraded the assessment on regional Japan. Six regional economies are described as "expanding moderately" or "moving toward a moderate expansion". That’s seen as the most upbeat language since 2005. BoJ Governor Haruhiko Kuroda also said that "Japan’s economy is expected to continue expanding moderately ahead." Nonetheless, Kuroda also remained cautious and reiterated the pledge to maintain ultra-loose monetary policy until the 2% inflation target is met. Released from Japan, machines orders dropped -3.6% mom in May versus expectation of 0.7% mom rise. Current account surplus narrowed to JPY 1.40T in May. Eco Watchers sentiment rose to 50 in June.

ECB Villeroy: Next fall is time to adapt the intensity of stimulus

In Eurozone, ECB Governing Council member Francois Villeroy de Galhau said that it will be the central bank’s decision "next fall" on "on adapting the intensity" of the monetary policy that "progress toward our inflation target and toward economic recovery." He used the phrase "adapt the intensity" a total of three times. That is seen by analysts as sign that ECB could pare back stimulus that would have least impact to tighten up financial conditions. Executive Board member Benoit Coeure also said last Friday that the central bank’s decision to lower monthly bond purchase from EUR 80b to 60b is a guide for future policy adjustments. For now, markets generally expect ECB to announce a tapering plan in September that would bring down monthly asset purchase to zero in 2018.

Elsewhere

China PPI was unchanged at 1.5% yoy in June. PPI also unchanged at 5.5% yoy. German trade surplus widened slightly to EUR 20.3b in May. Eurozone Sentix investor confidence will be release in European session. US will release labor market conditions index. Looking ahead, the economic calendar is not particularly heavy this week. BoC rate decision is the main focus and recent developments are setting up for a 25bps rate hike to 0.75%. UK job data will be watched as recent disappointing data cooled some BoE hike expectations. US will release PPIU and CPI. But most attention will be on Fed chair Janet Yellen’s testimony .

Here are some highlights for the week ahead:

• Tuesday: Australia NAB business confidence, home loans; Japan machine tools orders; Canada housing starts
• Wednesday: Japan tertiary industry index; UK employment; Eurozone industrial production; BoC rate decision
• Thursday: China trade balance; German CPI final; Swiss PPI; Canada housing starts; US PPI, jobless claims; Fed chair Yellen testimony
• Friday: Eurozone trade balance; US CPI, retail sales, industrial production, U of Michigan sentiment; business inventories

EUR/JPY Daily Outlook

Daily Pivots: (S1) 129.30; (P) 129.71; (R1) 130.25; More…

EUR/JPY rises further to as high as 130.39 so far and intraday bias remains on the upside for 100% projection of 114.84 to 125.80 from 122.39 at 133.35 next. On the downside, break of 127.99 support is needed to indicate short term topping. Otherwise, outlook will remain bullish in case of retreat.

In the bigger picture, the break of 126.09 support turned resistance should have confirmed completion of down trend form 149.76 (2014 high), at 109.03 (2016 low). Current rise from 109.03 would now target 61.8% retracement of 149.76 to 109.03 at 134.20 and above. Medium term outlook will remain bullish as long as 122.39 support holds.

Economic Indicators Update