The Japanese yen extends overnight's broad based rally as global stocks tumble. Nikkei 225 dropped more than -280 pts, or -2.8%, back below 10000 level, following -187pts fall in DOW in US. Crude oil once breached 70 level briefly and remains pressured. Gold also dived to as low as 926.5 before recovering mildly. Among the yen crosses, NZD/JPY and AUD/JPY are hardest hit, dropping -4.8% and -4.6% respectively so far, closely followed by EUR/JPY and CAD/JPY while fell over -3.5%. Dollar retreats mildly today, dragged down by sharp fall in USD/JPY, but remains generally firm against other major currencies.
Technically speaking, there are sign that yen crosses have at least formed a short term top last week. Bearish divergence conditions are in daily chart of EUR/JPY and AUD/JPY. Note that recent rally in most yen crosses are generally treated as part of medium term consolidation that started last October. While it's early to conclude if such consolidations were completed last week, the case for reversal is starting to build up. For example, AUD/JPY reversed sharply after hitting 80.43, just meeting 161.8% projection of 55.11 to 70.50 from 55.53 at 80.43. Considering bearish divergence condition in daily MACD, rise from 55.53, as well as the three wave correction from 55.11 might have completed already. Focus will turn to near term channel support at 73.00. Sustained break there will add much credence to the case of massive yen come back.
Dollar index retreated ahead of 81.47 resistance and the overall picture is mixed up by weakness in USD/JPY. EUR/USD is still struggling around head and shoulder neck line support, without follow through selling to sustain below 1.3793 level. Double top formation in AUD/USD is not confirmed neither with neckline support intact. The sharp fall in USD/JPY argues that the final falling leg in recent triangle consolidation consolidation has started and some more weakness should be seen in near term. Having said that, dollar might underperform yen in generally in near term, which could trigger some consolidation in dollar major pairs rather than extending recent rally. We'll turn intraday neutral in dollar index for the moment considering the change of some pull back. But downside is expected to be contained above 79.19 support and bring rally resumption. Above 81.47 will confirm that whole rise from 78.33 has resumed for key resistance of 82.63 (38.2% retracement of 89.62 to 78.93 at 82.64).
BoJ held rates unchanged at 0.1% as widely expected. The accompanying statement sounds slightly more optimistic, noting that Japan's economic conditions, after deteriorating significantly, have begun to stop worsening. Also, In the coming months, Japan's economy is likely to show clearer evidence of leveling out over time.
RBA minutes said the Board members did not see a pressing case for any further action at this meeting, though they viewed the inflation outlook as affording scope for some further easing of monetary policy. This suggests that the bank is still adopting an easing bias even though it's holding a wait and see stance for the moment.
Looking ahead, the economic calendar is jam packed with key data today. From UK CPI is expected to dropped further to 2.0% yoy in May but any downside surprise will send it below BoE's target of 2-3%. Eurozone CPI is expected to be finalized at 0.0% yoy in May. Germany ZEW is expected to improve from 31.1 to 35 while Eurozone ZEW is expected to rise fro 28.5 to 34. From US, PPI is expected to drop further form -3.7% yoy to -4.4% with core PPI down from 3.4% yoy to 3.2% in May. Housing starts and Building permits are expected to rise slightly in May but may surprise on the downside considering yesterday's disappointment in NAHB housing market index. Industrial production is expected to drop -0.8% yoy in May.