Yen Weakens as German Yield Surges again, NZD/JPY to Watch as NZ GDP and BoJ Loom

Yen continues to trade as the weakest one as German yield rises for another day. At the time of writing, 10 year bund yield rose another 3 pts to 0.41%. USD/JPY rises on that and and breaks 113 handle. But the greenback is seen soft elsewhere. Developments regarding the tax plan were positive. Senate finally voted 51-48 to pass the bill. House passed the bill yesterday with 227-203 votes. But due to technical glitches, House will have to re-do it again today. But that should just be procedural. Elsewhere, Sterling is trading rather firm today despite growth forecast downgrade by IMF.

IMF downgrades UK growth forecasts

The International Monetary Fund downgrades UK growth forecasts, citing Brexit uncertainty. Growth for 2017 was lowered by 0.1% to 1.6% and it’s expected to slow to 1.5% in 2018. IMF managing director Christine Lagarde said that UK is losing out to the rest of the world in terms of growth. And that’s a result of "higher inflation, pressure on wages and incomes and delayed investment". She pointed to investment as a example as she noted, "if you look at investment alone, with 2.1% of GDP in investment, with the global economy as it is, and the space the UK economy has in that global economy, it should be rolling at 6%."

And she emphasized that a new trade deal with EU will help restore productivity in the UK and helps improve living standard. She said that "the shape of the new agreement with the EU will affect productivity performance through its implications for trade, investment and migration." And, "the higher are any new barriers to the cross-border flow of services, goods and workers, the more negative the impact would be." Also, "Brexit has the potential to reshape the structure of the UK economy. The impact will depend on the nature of the final agreement and may take many years to fully materialise."

EU: Brexit transition to end on December 31, 2020

EU just published its guidelines for the next phase of Brexit negotiation. In the guidelines, the so called "transitional period" will last until December 31, 2020. EU emphasized that during the negotiation for the implementation phase will still have to follow the rules, and UK cannot adopt an "a la carte" approach. And, "the transition period needs to be clearly defined and precisely limited in time." During the period, EU would expect UK to continue to follow EU law while European Court of Justice rulings will still apply.

NZD/JPY to look into NZ GDP and BoJ

New Zealand Dollar has been under much pressure today after trade balance data. But comparing to the Japanese Yen while gives on global yield surge, it’s rather steady. New Zealand GDP and BoJ rate decision will be the focuses in the upcoming Asian session. And some volatility could be seen in NZDJPY. The pair has been bounded in medium term range trading since hitting 83.76 back in January. With the strong rebound from 76.08, the fall from 83.90 should have completed. The sideway pattern could have completed with three waves down to 76.08. Near term outlook will stay cautiously bullish for a test on 83.90 resistance. Upside acceleration in the next move will raise the chance of range breakout. Nonetheless, break of 77.72 support will turn focus back to 75.65/76.08 support zone instead.

On the data front

Canada retail wholesale sales rose 1.5% mom in October. UK CBI reported sales rose to 20 in December. Eurozone current account surplus narrowed to EUR 30.8b in October. German PPI slowed to 2.5% yoy in November. Japan all industry index rose 0.3% mom in October. New Zealand trade deficit widened to NZD -1193m in November. New Zealand current account deficit narrowed to NZD -4.68b in Q3. From Australia, Westpac leading index rose 0.1% mom in November.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 112.56; (P) 112.82; (R1) 113.13; More…..

Intraday bias in USD/JPY remains on the upside as rebound from 112.02 is on course to 113.74 resistance. Break will resume the rise fro 110.83 and target key resistance at 114.73 next. On the downside, below 112.83 minor support will turn intraday bias neutral first. But we’ll continue to expect further rally ahead as long as 112.02 support holds.

In the bigger picture, we’re holding on to the view that correction from 118.65 is completed at 107.31. And medium term rise from 98.97 (2016 low) is going to resume soon. Sustained break of 114.73 should affirm our view and send USD/JPY through 118.65. However, break of 107.31 will dampen this view and extend the medium term fall back to 98.97 low.

Economic Indicators Update