While the forex markets remained generally steady, stock traders experienced a roller coaster ride overnight. DOW surged in initial trading to as high as 26086.12 (up 283 pts) but reversed gain and closed down -0.04% at 25792.86. That’s the biggest single day reversal since February 2016. Similarly, S&P 500 surged to 2807.54 but closed down -0.35%. 10 year yield was relatively steady, closed down just -0.008 at 2.544. TNX is still struggling to have the momentum to get through 2.621 key resistance. A factor is the concerns over government shutdown in the US. The Congress will need to pass a spending bill by the end of this week to avoid the shutdown and it’s seen as a risk by many traders
Dollar may be ready for a near term rebound
In the currency markets, Dollar remains in red against all major currencies for the week. Canadian Dollar follows as the second weakest one as traders are cautious ahead of BoC rate decision. Aussie and Swiss Franc are so far the strongest ones for the week. A key technical development to note is that the latest selling leg in Dollar looks rather weak. That is, EUR/USD jumped through 1.2296 temporary top, to just 1.2322 and is now back at 1.2265. USD/JPY dipped through 110.32, to 110.18 but is now back at 110.57. There are two key levels that Dollar pairs in in proximity to. The levels are 1.3835 resistance in GBP/USD and 110.14 fibonacci level in USD/JPY. The greenback could be ready for a near term rebound.
Canadian Dollar in range, traders cautious on BoC hawkish hold
Bank of Canada rate decision is the main focus today. After strings of strong economic data, BoC is generally expected to hike interest rate by 25bps to 1.25%. That will be the third hikes of the current tightening cycle. Canadian Dollar stays in range trading (started since January 5) as traders are awaiting the rate decision. The loonie struggled to follow others to extend gain against the greenback since last week, even though WTI crude oil extended up trend to just inch below 65 handle. An explanation is that some traders are cautious on the chance of a "hawkish hold" by BoC today. That is, while BoC also expects itself to raise interest rate in Q1, it wait until March to do so. In that case, we’d probably see more range trading in USD/CAD above 1.2354. Nonetheless, we’re still a high chance of powering through 1.2354 support should BoC delivers the rate hike.
Elsewhere
Australia Westpac consumer confidence rose 1.8% in January, home loans rose 2.1% mom in November. Japan machine orders rose 5.7% mom in November. Eurozone CPI final is the main feature in European session. US will release industrial production, NAHB housing index and Fed’s Beige Book economic report later today.
USD/JPY Daily Outlook
Daily Pivots: (S1) 110.14; (P) 110.56; (R1) 110.88; More…
USD/JPY dipped to 110.18 but quickly recovered ahead of 61.8% retracement of 107.31 to 114.73 at 110.14. Intraday bias stays neutral first. At this point, further decline cannot be ruled out. But we’d look for bottoming again below 110.14 fibonacci level. Meanwhile, on the upside, break of 111.26 support turned resistance will suggest that USD/JPY has bottomed slightly earlier than expected. In that case, intraday bias will be turned back to the upside for 113.38 resistance. Decisive break there will confirm completion of the corrective pull back from 114.73 and turn outlook bullish.
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
| GMT | Ccy | Events | Actual | Forecast | Previous | Revised |
|---|---|---|---|---|---|---|
| 23:30 | AUD | Westpac Consumer Confidence Jan | 1.80% | 3.60% | ||
| 23:50 | JPY | Machine Orders M/M Nov | 5.70% | -1.20% | 5.00% | |
| 0:30 | AUD | Home Loans M/M Nov | 2.10% | 0.00% | -0.60% | |
| 10:00 | EUR | Eurozone CPI Y/Y Dec F | 1.40% | 1.50% | ||
| 10:00 | EUR | Eurozone CPI M/M Dec | 0.40% | 0.10% | ||
| 10:00 | EUR | Eurozone CPI Core Y/Y Dec F | 0.90% | 0.90% | ||
| 14:15 | USD | Industrial Production M/M Dec | 0.40% | 0.20% | ||
| 14:15 | USD | Capacity Utilization Dec | 77.30% | 77.10% | ||
| 15:00 | CAD | BoC Rate Decision | 1.25% | 1.00% | ||
| 15:00 | USD | NAHB Housing Market Index Jan | 72 | 74 | ||
| 19:00 | USD | Federal Reserve Beige Book | ||||
| 21:00 | USD | Net Long-term TIC Flows Nov | 23.2B |
