AUD/JPY Firm ahead of BoJ Policy Decision and Australia Employment Data

The forex markets are in rather dull mode today with lack of new drivers. Sterling remains the weakest currency for the week and markets continue to pare back expectation of a near term BoE hike. Dollar follows closely as there are talk emerging that US President Donald Trump would achieve nothing this year after the collapse of the health care bill. Euro also trades generally lower today as markets await ECB rate decision and press conference. But some volatility could be see in the upcoming Asian session first, with Australia employment data and BoJ policy decisions featured.

Australia to release job data

Aussie and Yen are both trading broadly higher today as markets await some key events tomorrow. Australian employment data will be one of the major focuses. Markets are expecting Australia to show 15k in job growth in June while unemployment rate is expected to climb back to 5.6%. The Aussie surged sharply earlier this week as hawkish RBA minutes revived speculations of rate hike. In particular, the minutes noted that ’employment growth had been strong in May for the third consecutive month. Members noted that growth in the preceding few months had been driven entirely by full-time employment and that total hours worked had trended higher as a result’. Strong job data will certainly give Aussie another lift.

Markets look into BoJ board shuffle

BoJ will also announce policy decision tomorrow. While no change is expected by the central bank, the markets are eager to see how the reshuffle in the board would shape the balance. New member Goushi Kataoka is a known dove who advocate massive stimulus. He wrote in a research note at Mitsubishi UFJ Research and Consulting earlier this year that "full-blown monetary and fiscal policies coupled with a growth strategy are crucial to break completely out of prolonged economic stagnation." Another new member Hitoshi Suzuki is believed to be a neutral. On the other hand, the usual dissenters Takehiro Sato and Takahide Kiuchi left.

AUD/JPY resumed medium term rebound

AUD/JPY’s strong break of 88.21 resistance this week confirmed resumption of rise from 72.39 medium term low. Near term outlook will now stay bullish as long as 86.97 support holds. Next targets are 61.8% projection of 72.39 to 88.21 from 81.48 at 91.25 and then 61.8% retracement of 105.42 (2013 high) to 72.39 at 92.80. We’ll be cautious on stopping in this resistance zone on first attempt.

Euro retreats ahead of ECB

Euro retreats mildly today as markets are preparing for ECB rate decision and press conference. The central bank is widely expected to keep interest rates and the asset purchase program unchanged. It’s reported that ECB staff are looking at scenarios of future policy path and decisions could be made in September. The details might include the path tapering, extension of asset purchase as a slow pace, or a combination. There is no solid proposal for the moment and ECB policy makers are unlikely to change the language to signal a policy shift yet. Yet, it should be consensus that the central bank has to take the shift very carefully. Recent comments from ECB President Mario Draghi has also shot up the Euro and yields in Eurozone, that pushed global yields much higher.

Trump could achieve nothing this year

After the repeal of Obamacare failed on the second attempt earlier this Tuesday. Trump then declared that his plan now is to "let Obamacare fail" and said after that, the Democrats would come to see out Republicans to work on a plan to replace it. Focus is now turned to Trump’s tax reform. It’s reported that Some Republican leaders are working on high-levels principles for the reform. But it’s believed that Trump may not be able to even release a broad outline until September. The last time White House did a major tax bill back in 1986, it took more than a year to complete the work.

On the data front

US housing starts rose to 1.22m annualized rate in June, building permits rose to 1.25m. Canada manufacturing shipments rose 1.1% mom May. Australia Westpac leading index dropped -1.0% mom in June.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.9503; (P) 0.9569; (R1) 0.9614; More…

Intraday bias in USD/CHF remains on the downside for the moment. Current fall from 1.0342 should target 0.9443 key support level next. At this point, we’d expect strong support from there to bring rebound. On the upside, above 0.9562 minor support will turn intraday bias neutral first. Nonetheless, break of 0.9699 resistance is needed to indicate short term bottoming. Otherwise, outlook will remain bearish in case of recovery.

In the bigger picture, USD/CHF is still bounded in medium term range of 0.9443/1.0342 for the moment. Consolidative trading would likely continue and medium term outlook remains neutral. Break of 1.0342 key resistance is needed to confirm underlying bullish momentum in the pair. Meanwhile, downside attempts should be contained by 0.9443 key support level. However, sustained break of 0.9443 will carry larger bearish implication and target 0.9 handle.

Economic Indicators Update