Dollar strengthens broadly into US session after comments from new Finance Minister Naoto Kan sent USD/JPY above 93 level. Risk aversion also helped the greenback after surprised yield hike from People's Bank of China to curb record lending. European majors are generally lower against the greenback with Sterling under pressure after a non-eventful BoE announcement. Aussie also pared earlier gains and dropped sharply from today's high of 0.9264 to 0.916 level. Nevertheless, Canadian dollar is relatively resilient as crude oil is still managing to stay above 82 level.
The new Finance Minister Naoto Kan calls for a weaker currency today and said he would cooperate with BoJ to guide yen exchange rate to appropriate levels. He even mentioned that such appropriate level in terms trade would be around 95 in USD/JPY. The comments are in sharp contrast to his predecessor, Hirohisa Fujii, who openly said that a strong yen is in Japan's interest. USD/JPY broke through recent high of 93.2 earlier today to resume the rebound from 84.81 and is heading towards Kan's 95 level.
People's Bank of China offered USD 8.8b of bills at yield of 1.3684 today, four basis points higher than last week's sale. This is also the first time in 19 weeks that the three month bills are offered at a higher interest rate. The move is viewed as a way to withdraw surplus cash in the system but there are concerns that it's a sign that China is starting to use stronger measures to cool growth and fight inflation from overheat lending.
BoE left interest rates unchanged at 0.5% and asset purchase program unchanged at GBP 200b as widely expected. No detail was released with the statement and focus will turn to meeting minutes to be published on Jan 20 as well as the Quarterly Inflation Report to be published on Feb 10.
On the data front, US jobless claims was basically unchanged at 434k. Eurozone confidence indicators showed broad improvements in December with consumer confidence up to -16, economic confidence up to 91.3, industrial confidence up to -15, services confidence up to -3. Eurozone retail sales, though, unexpectedly dropped -1.2% mom, -4.0% yoy in November. Swiss CPI also unexpectedly dropped by -0.2% mom in December, with yoy rate up 0.3%. Australia retail sales release over night showed stronger than expected growth of 1.4% mom in November.
Dollar index's rise from 77.09 resumes today and breaks 78 level. The development is turning favor back to the case the consolidation from 78.45 has completed with three waves down to 77.09 already. Nevertheless, we'd still prefer to see a break of 78.19 resistance before concluding. Break there will strongly suggest that whole rise from 74.19 has resumed for 38.2% retracement of 89.62 to 74.19 at 80.08.
Talking about the resilience in Canadian dollar, the strength can clearly be seen against European majors. EUR/CAD dives sharply to as low as 1.4770 so far today and the whole medium term fall from 2008 high of 1.7499 is still in progress for next key support level at 1.4716 (2008 low). A break of 1.5170 resistance is needed to be the first sign of stabilization or EUR/CAD will remain bearish.
USD/JPY Mid-Day Outlook
Daily Pivots: (S1) 91.64; (P) 92.19; (R1) 92.85; More.
USD/JPY's rise from 91.24 extends further today and the break of 93.20 resistance indicates that whole rally from 84.81 is still in progress and has resumed. Intraday bias is flipped back to the upside and further rise could now be seen towards medium term trend line resistance at 95.08 and 55 weeks EMA at 94.21. ON the downside, though a break of 92.08 minor support will serve as a signal that USD/JPY has topped out and will flip intraday bias back to the downside for 91.24 support first and then 87.36.
In the bigger picture, at this point, USD/JPY is still trading well below medium term trend line resistance at 95.08 and 55 weeks EMA at 94.21. Hence, there is no clear indication of reversal yet. A break of 87.36 support will confirm that rebound from 84.81 has completed. The three wave corrective structure will in turn support the case that whole fall form 124.13 is resuming for 1995 low of 79.75. However, note bullish convergence condition is seen in weekly MACD. Sustained trading above the medium trend line resistance will be the first signal of medium term reversal and in such case, focus will turn to 101.43 resistance for confirmation.