USD/JPY Upside Breakout after Powell Got Nominated Again, Gold Tumbled

Dollar surged overnight after Fed Chair Jerome Powell was nominated for a second term by US President Joe Biden. The greenback stays firm in Asian session and is ready to extend its near term rally. On the other hand, New Zealand Dollar is trading notably lower, as traders are probably pricing out the chance of an aggressive 50bps RBNZ hike later in the week. Yen is also soft, following rebound in global benchmark treasury yields.

Technically, EUR/USD is starting to trade comfortably below 1.13 handle, but there is no clear downside acceleration yet. But the greenback does progress with upside breakout in USD/JPY. Gold’s sharp decline also affirms the underlying momentum of Dollar. A focus for the week is whether Gold’s selloff is enough to push it through 1800 handle, for at least a test on 1757.84 support.

In Asia, at the time of writing, Hong Kong HSI is down -1.08%. China Shanghai SSE is up 0.38%. Singapore Strait Times is down -0.12%. Japan is on holiday. Overnight, DOW rose 0.05%. S&P 500 dropped -0.32% after hitting new record at 4743. NASDAQ also dropped -1.26% after hitting new record at 16212. 10-year yield rose 0.089 to 1.625.

New Zealand retail sales dropped -8.1% qoq in Q3, 12 of 15 industries down

New Zealand retail sales dropped -8.1% qoq in Q3, better than expectation of -10.2% qoq. Ex-auto sales dropped -6.7% qoq, also better than expectation of -7.6% qoq.

Twelve of the 15 industries had lower sales volumes. By industry, the largest movements were: Food and beverage services – down -19%; Motor vehicle and parts retailing – down -12%; Department stores – down -24%; Hardware, building, and garden supplies – -down 15%.

The Auckland region dominated the national fall with a record decrease of -15% (1.5 billion), compared with the 6.2% ($618 million) rise in the June 2021 quarter.

NZD/USD accelerating down to 0.6858 support first

Selling in New Zealand Dollar is taking off today as traders could be starting to price out an aggressive 50bps hike by RBNZ later in the week. NZD/USD’s decline from 0.7217 is re-accelerating as seen in 4 hour MACD. And it’s on track to take on 0.6858 support.

Overall, the corrective pattern from 0.6804 should have completed with three waves up to 0.7217, after rejection by medium term falling channel. The development suggests that whole pattern from 0.7463 is still in progress. Break of 0.6858 will affirm this bearish case. Deeper decline should be seen through 0.6804 to 38.2% retracement of 0.5467 to 0.7463 at 0.6731 next. This will remain the favored case as long as 0.7051 resistance holds.

Some previews on RBNZ:

• RBNZ To Lift Policy Rate Again after Strong Inflation
• RBNZ Preview: Rate Rise Unlikely To Boost The Bird – NZDUSD
• RBNZ Meeting: Single or Double Rate Hike?

Australia PMI composite rose to 55, business confidence improved

Australia PMI Manufacturing rose from 58.2 to 58.5 in November. PMI Services rose from 51.8 to 55.0. PMI Composite rose from 52.1 to 55.0. All three indexes hit 5-month highs.

Jingyi Pan, Economics Associate Director at IHS Markit, said: “Supply chain issues featured strongly in the Australian PMI survey as delivery times lengthened, widespread shortages were reported and price increases continued to be seen. While some of these can be attributed to the presence of pent-up demand that was reported, it will be worth watching if the constraints clear over time.

“Overall business confidence improved in the latest survey and this was a very positive sign. Private sector firms were also more willing to expand their workforce capacity, though instances of labour shortages had continued to surface.”

Looking ahead

PMIs from Eurozone, UK and US are the main focuses of the day.

USD/JPY Daily Outlook

Daily Pivots: (S1) 114.22; (P) 114.59; (R1) 115.24; More…

USD/JPY’s break of 114.96 resistance confirms resumption of whole up trend from 102.58. Intraday bias is back on the upside. Current rise should target 100% projection of 102.58 to 111.65 from 109.11 at 118.18 next. On the downside, break of 113.57 support is needed to indicate short term topping. Otherwise, outlook will stay bullish in case of retreat.

In the bigger picture, corrective decline from 118.65 (2016 high) should have completed at 101.18 already. Rise from the 102.58 is seen as the third leg of the up trend from 101.18. Next target is 118.65 high. This will now be the preferred case as long as 111.65 resistance turned support holds, even in case of deep pull back.

Economic Indicators Update