Dollar Rises after Solid NFP, Reversing against Yen, But Unsure about Europeans

Dollar jumps in early US session after another set of solid employment data. Non-farm payrolls report shows 200k growth in January, above expectation of 180k. Prior month’s figure was revised up by 12k to 160k. Unemployment rate was unchanged at 4.1% as expected. Average hourly earnings also grew 0.3% mom, in line with consensus. The recovery in greenback is broad based. But we’d like to point out that firstly, USD/JPY’s break of 110.18 resistance is now seen as a sign of near term reversal. AUD/USD has topped out earlier this week and the post NFP decline also affirms the case of near term reversal. However, against European majors, Dollar is just in staying in range and the rebound might just be part of consolidation patterns.

UK PMI construction indicated a difficult start to 2018

UK construction PMI dropped to 50.2 in January, down from 52.2 and missed expectation of 52.0. Markit noted in the release that "January’s PMI data indicated a difficult start to 2018 for the UK’s construction sector, underlined by business activity growth slumping to a four-month low and new orders sliding back into decline." Also, "a contraction in house building added to lackluster commercial building and civil engineering markets, and reduced inflows of new work suggest overall activity could slip into decline in February." And further more, "cost pressures remained intense, fuelled by shortages of input materials and high costs for imported products."

ECB Coeure: The euro area needs reform

ECB Executive Board member Benoit Coeure warned today that "to assume that the current economic expansion will heal all wounds is naive. The euro area needs reform." He pointed out that the next financial crisis could force ECB interest rates "much deeper into negative territory" or "require purchases of assets that are riskier than public or corporate debt", or " it may draw us dangerously close to monetary financing of governments." He suggested greater integration in services and in financial markets, and a more complete banking union.

Released from Eurozone, PPI rose 0.2% mom, 2.2% yoy in December.

Nomination for BoJ Governor might be revealed mid-to-late February

In Japan, it’s reported that the government will likely announce the nominations of next BoJ Governor and Deputy Governors around mid-to-late February. At this point, it’s still believed that current Governor Haruhiko Kuroda is the front runner, given the praises by Prime Minister Shinzo Abe and his officials. However, it’s far from being certain. From the government’s point of view, the choices could be indifferent if the next Governor will be persistent enough in following through with Abenomics.

BoJ conducted a special bond purchase operation today, offering to buy an "unlimited" amount of long-term JGBS. That’s the first time in six months that such special operations were conducted. On the top of that, the purchase of 5- to 10- years JGBs was also raised from PY 410b to JPY 450b. It’s seen by the markets as a pre-emptive move to fend off rise in JGB yields, which was taken higher by global counterparts in recent weeks.

Released from Japan, monetary base rose 9.7% yoy in January.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 109.07; (P) 109.41; (R1) 109.73; More…

USD/JPY’s rebound from 108.27 extends higher today. Break of 110.18 support turned resistance is taken as the first sign of near term reversal. Intraday bias is turned back to the upside for 111.47 resistance first. Sustained break there will also have 55 day EMA (now at 11.39) firmly taken out. In such case, further rise would be seen back to 113.38/114.73 resistance zone. On the downside, however, below 109.22 minor support will turn focus back to 108.27 instead.

In the bigger picture, current development argues that the corrective pattern from 118.65 is extending. There is risk of dropping further to 61.8% retracement of 98.97 to 118.65 at 106.48. But this level should provide strong support to contain downside and bring resumption of rise from 98.97. However, sustained break of 106.48 will now likely send USD/JPY through 98.97 to resume the corrective fall from 125.85 (2015 high).

Economic Indicators Update