Dollar Retreats Mildly in Quiet Markets, Three Central Banks to Meet this Week

The financial markets are generally steady in Asian session today. Dollar turns slightly softer against Euro and commodity currencies, but losses are so far limited. Though, Sterling is clearly weak as pressured by speculations of BoE rate cut. The Pound will face some more challenges from economic data this week, before heading to BoE meeting on January 30. Overall, trading would remain subdued today with US on holiday. But volatility will heat up with three central bank meetings scheduled later in the week.

Technically, immediate focus in on 1.1085 support in EUR/USD. Break will resume the decline from 1.1239. A head and shoulder top pattern would be completed too, which turns near term outlook bearish for 1.0981 support. Correspondingly, 0.6849 support in AUD/USD is another level to watch too. Break will also reaffirm near term bearishness for 0.6754 support.

In Asia, Nikkei closed up 0.18%. Hong Kong HSI is down -0.69%. China Shanghai SSE is up 0.43%. Singapore Strait Times is down -0.23%. Japan 10-year JGB yield is up 0.0075 at 0.008.

US farmers’ approval of Trump hits record after China trade deal

American farmers’ support for President Donald Trump hit records after completion of US-China trade deal phase one. According to the Farm Journal Pulse poll, 64% of 1286 respondents said they strongly approve of Trump. 19% said they somewhat approve. Only 13% said they disapprove of the president’s performance.

Trump said he would seriously enforce the trade agreement with China and he believed “it’s going to work out. He added that “China is going all out to prove that the agreement that we signed is a good agreement.” According to the deal, China will buy USD 36B of US agriculture products this year, and more than USD 43B in 2021.

China: Pressure on stabilizing industrial growth is still big

China’s Minister of Industry and Information Technology spokesperson Miao Wei said the government will continue with tax and fee reductions in 2020 to support growth. Focus will be on manufacturing sector, with increase in research and development investments.

Miao said “looking forward to 2020, industrial development faces many difficulties and risks,” and ” pressure on stabilizing industrial growth is still big.” But the government will be able to “ensure the smooth operation of the industrial economy” with the above efforts.

On 5G technology, Miao said more than 130,000 base stations were built by the end of last year.  35 mobile phone terminals received network access licenses. More than 13.77m 5G phones were made. These phones are expected to cost less than CNY 1500 in Q4.

Japan PM Abe said South Korea is the most important neighbor sharing basic values and strategic interests

Japanese Prime Minister Shinzo Abe offered some warm words to South Korea today, suggesting both sides are moving towards normalization of relationship. He upgraded description of South Korea from an “important neighbor” to “the most important neighbor” who “shares basic values and strategic interests.”

Abe told the parliament that “under an increasingly severe security environment in Northeast Asia, diplomacy with neighboring countries is extremely important”. And, “essentially, South Korea is the most important neighbor with which Japan shares basic values and strategic interests.”

Abe also urged to leave the issues of wartime labor behind. And, “I sincerely hope South Korea honors the commitments between the two counties and works toward building future-oriented relations.”

BoJ, BoC and ECB to meet, and lots of data too

Three central banks will meet this week, BoJ, BoC and ECB. All are expected to stand pat. BoJ meeting will likely be a non-event. BoC’s messages to the markets have been rather confusing in recent months. It sounded alerted by warning that Canada’s resilience could be tested. Yet, there was no further dovishness in other communications. It’s given another chance to clarify its stance with the monetary policy statement this week. ECB looks comfortable with the current monetary policy. Focus will be more on the details regarding policy framework reviews.

On the data front, UK employment and PMIs will catch a lot of attention and have an influence on whether BoE would cut on January 30. Eurozone will release PMIs and German ZEW economic sentiment too. Canada CPI and retail sales could as market moving as BoC rate decision. New Zealand CPI and Australia PMIs will also be watched.

Here are some highlights for the week:

• Monday: UK Rightmove house price; Japan industrial production final; Germany PPI.
• Tuesday: BoJ rate decision; UK employment; Germany ZEW economic sentiment; Canada manufacturing sales.
• Wednesday: Australia Westpac consumer sentiment; UK public sector net borrowing, CBI industrial order expectations; Canada CPI, wholesale sales; BoC rate decision; US house price index, existing home sales.
• Thursday: Japan trade balance, all industries activity index; ECB rate decision; US jobless claims, leading indicator;
• Friday: New Zealand CPI; Australia PMIs; Japan national CPI core, manufacturing PMI; Eurozone PMIs; UK PMIs; Canada retail sales; US PMIs.

USD/JPY Daily Outlook

Daily Pivots: (S1) 110.05; (P) 110.17; (R1) 110.29; More..

Upside momentum in USD/JPY is a bit unconvincing as seen in 4 hour MACD. But with 109.79 minor support intact, further rise is expected. Current rally from 104.45 should target 100% projection of 106.48 to 109.72 from 107.65 at 110.89 next. On the downside, , break of 109.79 support will indicate short term topping. Intraday bias will be turned back to the downside for 55 day EMA (now at 109.07).

In the bigger picture, USD/JPY is staying in long term falling channel that started at 118.65 (Dec. 2016). There is no clear indication of trend reversal yet. Hence, rise from 104.45 is seen as a correction and down trend could still extend through 104.45 low. However, sustained break of the channel resistance will be an important sign of bullish reversal and target 114.54 resistance for confirmation.

Economic Indicators Update