The Japanese yen continue to retreat after Japan Finance Minister Hirohisa Fujii reversed his rhetoric about strong yen policy and as Asian stocks rebound following strength in US equities. Fujii claimed he never said I will leave the yen to strengthen, insisting that he was misinterpreted as supporting a strong yen policy. Fujii then emphasized if the currency market moves abnormally, we may take necessary steps in the national interest, raising speculations that Japan may intervene to curb the currencies' recent sharp gain.
Asian stocks are generally higher following the 1.78% surge in S&P 500. Nikkei stayed above 10000 level and closed 75 points higher at 10084. Crude oil recovers mildly with stocks and trades around 67 level. Dollar is slightly softer against European majors but is supported as gold struggles below 1000 mark. Commodity currencies are strong so far. In particular, AUD/USD manages to stay above 0.8589 near term support and is nearer to 0.8787 high on rebound.
Strength in Aussie can also be seen in crosses. EUR/AUD falls sharply today and breaks prior low of 1.6715. While downside momentum might be diminishing with mild bullish divergence condition in daily MACD, the current down trend in EUR/AUD is still in favor to extend towards next key support level at 1.6045. A break of 1.7044 resistance is needed to be the first indication that EUR/AUD has bottomed out.
Dollar index continues to struggle in tight range below 77.25 today. Lack of follow through buying didn't confirm the case that dollar index has bottomed out. Nevertheless, we'd remain cautiously bullish as long as 76.50 minor support holds and expect stronger rally towards 78.93 on sustained trading above 77.09 resistance. Break of 78.93 will confirm that whole five wave fall from March high of 89.62 has completed and will confirm the bullish view. However, a break below 76.50 will dampen this case and turn outlook neutral again first.
On the data front, Japan CPI dropped -2.2% yoy while core CPI dropped slightly more than expected by -2.4% yoy in August. Swiss UBS consumption indicator dropped to 0.658 in September. German import price rose more than expected by 1.3% in August. UK Q2 GDP is expected to finalize at -0.6% qoq, -5.4% yoy. Eurozone continues indicates are generally expected to show improvements in September. From US, S&P Case-shiller 20 city home price is expected to drop -14.2% yoy in July, slowed from -15.44%. Conference Board consumer confidence is expected to rise further to 57 in September.
USD/JPY Daily Outlook
Daily Pivots: (S1) 88.97; (P) 90.16; (R1) 90.83; More.
USD/JPY's rebound from 88.23 continues and break of 89.93 indicates that an intraday low is formed. Some more recovery might be seen but after all, upside is expected to be limited below 92.52 resistance and bring fall resumption. On the downside, below 89.12 will flip intraday bias back to the downside. Break of 88.23 will target key support level of 87.12 next. However, note that a break of 92.52 resistance will indicate that whole fall from 97.77 has completed and stronger rebound should be seen in such case.
In the bigger picture, USD/JPY's pattern of lower highs, lower lows since 2007 high of 124.13 is still intact, so is the down trend from there. Break of 87.12 key support will pave the way to extend the downtrend to next key level of 1995 low at 79.75. On the upside, above 92.52 resistance will indicate that a short term bottom is formed and will bring stronger rebound. But after all, fall from 101.43 is still expected to continue as long as 97.77 resistance holds.