Japanese Yen Gains After Strong Demand at 2-Year Treasury Auction, Where to?

Japanese Yen, USD/JPY, 2-Year Treasury Auction, US GDP – Asia Pacific Market Open:

Japanese Yen gained as the 2-year Treasury yield weakenedLocal bond auction showed demand was highest since 2020USD/JPY remains focused lower after October trendline held

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Asia-Pacific Market Briefing – Japanese Yen Gains as Treasury Yields Fall

The Japanese Yen gained against the US Dollar on Wednesday, capitalizing on broad weakness in the Greenback. Notwithstanding small recent changes from the Bank of Japan towards policy normalization, the BoJ remains the most dovish developed central bank. As such, the Yen often finds itself being sensitive to external developments, particularly from the United States.

USD/JPY’s drop coincided with the 2-year Treasury yield falling about 2 percent on Wednesday. The latest 2-year Treasury auction revealed that the bid-to-cover ratio jumped to 2.94 from 2.71. This is a gauge of demand. It was the highest since April 2020. It seems participants might be eager to lock in a high rate in anticipation of a future decline in yields. Such an outcome could be caused by a recession.

The auction also occurred before key US economic data comes out later today. At 13:30 GMT, the first estimate of fourth-quarter GDP will cross the wires. The US economy is seen growing 2.6% q/q, slower from 3.2% in Q3. A softer outcome could further boost beds of Federal Reserve rate cuts later this year. A subsequent drop in US bond yields would thus likely push USD/JPY lower.

Focusing on Thursday’s Asia-Pacific trading session, the economic docket is fairly quiet. As such, the focus for traders will likely be on risk appetite. Wednesday’s Wall Street trading session saw the Dow Jones, S&P 500 and Nasdaq 100 finish mostly flat. As such, this may leave markets consolidating until key US GDP data comes out later.

Japanese Yen Technical Analysis

On the daily chart, USD/JPY appears to be turning lower after prices once again tested the key falling trendline from October. Further losses would place the focus on the 100% Fibonacci extension level at 127.98. Keep a close eye on RSI. Positive divergence may emerge, continuing to show that downside momentum is fading. The latter can at times carry bearish underpinnings.

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USD/JPY Daily Chart

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— Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com

To contact Daniel, follow him on Twitter:@ddubrovskyFX

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Gold Holds the High Ground as US Dollar Languishes. Where to for XAU/USD?

Gold, XAU/USD, US Dollar, FOMC, AUD/USD, RBA, NZD/USD RBNZ, Crude Oil – Talking Points

The gold price remains steady near its highs today as yields slip elsewhereAustralia and New Zealand saw uncomfortable CPI data that sent AUD/NZD northThe market is eyeing next week’s FOMC meeting. What will it mean for XAU/USD?

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Gold traded above US$ 1,942 overnight and continues to trade just below that level today as markets fret over the health of the US economy.

Disappointing PMI data appeared to lead to market perceptions that the Fed night is not going to be hiking as hard as previously thought. Treasury yields fell across the curve with the largest declines seen at the back end.

The lower return on offer from interest-rate products seems to have favoured the non-yield-bearing precious metal.

The Federal Open Market Committee (FOMC) meeting is Wednesday next week and a 25 basis point lift is baked in by the rates market. The proceeding commentary will be scrutinised for hints on futures rate moves and may impact the US Dollar and gold

Microsoft reported better-than-expected earnings but gave a warning on revenue from the Azure cloud business going forward and this appears to have soured market sentiment with Wall Street futures pointing to a soft start there later.

APAC equity markets that were open today have had a fairly quiet session with mainland China and Hong Kong still on holiday. South Korean indices were the exception with the Kospi and Kosdaq posting a gain of over 1% on their first day back trading after the Lunar New Year holidays.

Australia saw a sizzling CPI number today with the headline number printing at 7.8% year-on-year to the end of December, above the 7.6% anticipated and 7.3% previously.

Looking at the futures market, the odds of a 25 basis point hike at the RBA’s February meeting increased from around 50/50 to a 76% chance. AUD/USD climbed to a 5-month peak in the aftermath.

The Kiwi Dollar also got an initial boost from their CPI data that was 7.2% year-on-year for the fourth quarter rather than the 7.1% estimated. The currency then spent the rest of the day drifting lower.

Crude oil has been steady so far today after tumbling overnight on higher-than-forecast API inventory build. The WTI futures contract is near US$ 80.50 bbl while the Brent contract is around US$ 86.50 bbl at the time of going to print.

After German IFO numbers today, the Bank of Canada will be making an interest rate decision and the US will see mortgage data.

The full economic calendar can be viewed here.

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GOLD TECHNICAL ANALYSIS

Gold is currently above all short, medium and long-term daily simple moving averages (SMA).

The gradients on the 10-, 21-, 55- and 100-day SMAs are positive but the 200-day SMA is yet to tick up. This may suggest that bullish short and medium-term momentum is evolving but long-term momentum is yet to completely acknowledge this.

Resistance might be at the recent peak of 1942 or the April 2022 high of 1998.

On the downside, support may lie at the low of 1897 or the breakpoints of 1865 and 1825.

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Please contact Daniel via @DanMcCathyFX on Twitter

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Australian Dollar Eyes New Heights Ahead of Crucial CPI Data. Where to for AUD/USD?

Australian Dollar, AUD/USD, US Dollar, Fed, RBA, CPI, Iron Ore, Gold – Talking Points

The Australian Dollar has made ground today on US Dollar weaknessWhile the market is rightly focussed on tomorrow’s CPI, PPI on Friday might impactChina is on holiday, but commodities are buoyant. Will AUD/USD make a new high?

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The Australian Dollar is pushing toward the five-month high seen last week at 0.7063 as the US Dollar continues to come under pressure more broadly.

Several speakers from the Federal Reserve have recently stated that they now see hikes of 25 basis points (bp) as the appropriate pace of tightening in the upcoming Federal Open Market Committee (FOMC) meetings.

The futures and swaps interest rate markets are pencilling in such lifts at the February and March meetings but are then less enthusiastic about higher rates beyond there.

This perception around an end to further restrictive policy appears to have boosted equity markets and undermined the US Dollar.

On the domestic front, tomorrow’s climacteric quarterly CPI data will be closely scrutinised for clues on the Reserve Bank of Australia’s rate decision on the 7th of February. The futures market is undecided with a 14 bp increase in the cash rate priced in. Neither 25 bp nor ‘no change’ is clear cut.

A Bloomberg survey of economists is anticipating the headline Q/Q CPI to go from 1.8% to 1.6%, while for the Y/Y read, they are forecasting it to go from 7.6% to 7.8%. The discrepancy is explained by a lower quarterly number dropping out from the fourth quarter of 2021.

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While CPI is the focus for the RBA’s mandate of targeting 2 – 3% over the business cycle, the Producer Price Index (PPI) could also play a role.

PPI is going to be released this Friday and if it has accelerated over the fourth quarter, it could present a problem for CPI through this quarter. Businesses that are facing higher costs at the farm and factory gate have two choices.

They can absorb the increases in costs and take a hit to earnings, or they can try and pass on the price rises to consumers. With the unemployment rate languishing near multi-generational lows at 3.5%, profit-motivated enterprises might be keen to pass on their cost increases and maintain their margins.

While China is on holiday this week for Lunar New Year celebrations, the re-opening story there continues to underpin commodity markets.

Many of Australia’s exports have seen notable price gains since the world’s second-largest economy pivoted on its Covid-19 policy. If this continues, it may augment AUD/USD.

AUD/USD, COPPER, GOLD, IRON ORE AND DXY (USD) INDEX

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Markets Week Ahead: Dow Jones, Nasdaq 100, Canadian Dollar, BoC, AUD/USD, NZD/USD

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Global market sentiment was a mixed bag last week. On Wall Street, the Dow Jones plummeted 2.38% as the tech-heavy Nasdaq 100 soared 1.27%. Things looked worse across the Atlantic Ocean, the DAX 40 and FTSE 100 fell -0.35% and -0.94%, respectively. Markets were rosier in the Asia-Pacific region. The Nikkei 225 and Hang Seng Index rose 1.66% and 1.41%, respectively.

A rally in the tech sector helped boost market sentiment on Friday as Google’s parent company Alphabet announced the most layoffs on record. Meanwhile, markets enjoyed comments from Fed officials that hinted towards a moderation in tightening. Fed Funds Futures continue pointing to rate cuts later this year, putting markets on a divergent path from central bank projections.

An example of what can happen when this occurs was seen by the Bank of Japan this past week. The BoJ disappointed markets with a policy hold, plunging JPY initially. However, the currency recovered as markets looked beyond the near term to when Governor Kuroda’s term ends in April, focusing on what may come after. Still, this produced intense volatility.

Ahead, the Canadian Dollar is awaiting the Bank of Canada interest rate announcement. Looking at market pricing, traders anticipate Wednesday’s 25 basis point rate hike to be the last of this tightening cycle. Much like with the BoJ, this is leaving markets increasingly vulnerable to disappointment, opening the door for the Loonie to pull ahead.

Other notable event risks in the week ahead include New Zealand’s and Australia’s inflation rates for NZD/USD and AUD/USD, respectively. Later on, the Fed’s preferred inflation gauge is seen softening further. The earnings season remains in full swing, with Microsoft and Tesla reporting. What else is in store for the week ahead?

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How Markets Performed – Week of 1/16

Fundamental Forecasts:

S&P 500 and Nasdaq 100 Fundamental Forecasts for the Week Ahead

US equity markets have been on the back foot for most of the week as the US earnings season gets into full flow.

Pound Fundamental Forecast: Constrained Consumers Send GBP Lower

The pound continues to grapple with many fundamental challenges. The main ones include stubbornly high prices, declining economic activity (spending).

Australian Dollar Outlook: CPI Moves into View

The Australian Dollar made a six-month peak last week as the US Dollar continues to weaken with the Fed in focus. Local CPI data is due this week. Will it push AUD/USD higher?

Dollar Searches for Break from Range with EURUSD and USDJPY Prime Candidates

The holidays are passed, but the restrictive trading conditions seem to have carried over into the second half of January. The Dollar has been trapped in a tight range through this week as market participants await a clear signal. Will we get it amid key event risk like the US 1Q GDP release next week?

Canadian Dollar Outlook: Markets Think Next Week’s BoC Rate Hike Will be the Last

The Canadian Dollar is eyeing next week’s Bank of Canada monetary policy announcement. A 25-basis point rate hike is priced in. Will it conclude the tightening cycle?

Technical Forecasts:

US Dollar Technical Forecast: EUR/USD, GBP/USD, AUD/USD, USD/CAD

The US Dollar set a fresh seven-month-low this week while testing a key spot of support at the 50% mark of the two-year-trend.

Gold Price Outlook: XAU/USD Resilience Holds at Nine-Month High

Gold prices ended their fifth consecutive week of gains marginally higher after rising to a nine-month high $1,939. RSI moves into overbought territory.

S&P 500 and NASDAQ 100 INDEX Technical Outlook: Still Not Out of the Woods

US equity indices have lagged behind the performance of some of their peers in recent weeks and it appears that they are still not out of the woods. What is the outlook on the S&P 500 index and the Nasdaq 100 index and what are the levels to watch?

Japanese Yen Technical Forecast: USD/JPY Bounces After Kuroda Comment

USD/JPY has made a loud turn from the bullish trend that dominated in the first nine months of last year. But for how long can USD/JPY pull back?

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What Leads Dollar and S&P 500 to Stop Flirting With Volatility and Break Congestion?

S&P 500, VIX, Dollar, Recession and Earnings Talking Points:

The Market Perspective: S&P 500 Eminis Bearish Below 3,900; USDJPY Bullish Above 127.00Despite some provocative event risk (China GDP, BOJ decision) and some bouts of acute volatility (USDJPY, S&P 500), the broader market avoided convictionAs the benchmark US index teases another 200-day SMA break and the DXY holds its extremely tight range, a run of top event risk in the week ahead raises the stakes for breaks

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We have closed out the third week of the new trading year, but the return of liquidity has not brought with it a sense of conviction from the speculative rank. There remain underlying conditions that are acting to throttle a full-blown sentiment charge – whether it coalesce around a bullish or bearish view. Seasonal norms for activity and performance from benchmarks like the VIX and S&P 500 respectively are not particularly conducive to trend development, but the more generic imbalance of anticipation overriding reaction was a more tangible influence. The event risk this past week simply didn’t rise to the occasion of definitively tipping the scales of conviction behind risk trends. From the Chinese 4Q GDP update to the BOJ rate decision to Netflix earnings, the data was noteworthy and even volatility inducing for specific segments of the financial system. But, systemic it was not. Some of the event risk that we have on tap for the week ahead is of significantly greater speculative breadth. Could US GDP, January PMIs, Microsoft earnings or the Fed’s favorite inflation indicator ignite a larger fire?

Part of the equation when it comes to evaluating the market’s ability to commit to a more significant trend is the backdrop. From a technical perspective, there is an abundance of prominent technical barriers that could be deemed ‘significant’ if they were breached. For the S&P 500, the boundaries have been overt and thoroughly harassed. The well-worn 3,900 floor was tagged, but only after the bulls failed to capitalize on a close above the closely-watched 200-day SMA (simple moving average). That particular moving average has played a key role in carrying trend with critical tests and breaks in the past amplifying its weight. Yet, it’s relevance seems to have significantly diminished as of late – something to consider when with the S&P 500 closing above the technical measure by Friday’s close.

Chart of S&P 500 Overlaid with the US 2-Year Treasury Yield / VIX Ratio (Weekly)

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Meanwhile, a bigger picture consideration is the argument made for the markets already fully discounting future fundamental troubles with the technical ‘bear market’ in 2022. While a significant correction, we have only modestly corrected the previous decade’s build up and there has been no panicked unwinding in the market that rouses the opportunism appeal. Why? With the general risk/reward behind the market (above the 2-year Treasury yield as a ratio with the VIX) still climbing; fear has been muted. In the absence of a full market ‘flush’, systemic fundamental trends are more important for guiding next stages. I believe there are still two dominant themes dictating the bulk of the market’s sentiment: monetary policy and growth forecasts. Ove the coming week, we will come into event risk that taps both themes, but I believe recession risks are the least scoped threat with the greatest potential. We have a ‘developed world’ economic update on tap this week and the IMF will give an interim update on its World Economic Outlook (WEO) on January 31st, but official 4Q GDP reading for the world’s largest economy is due Thursday. In honor of this event risk, I asked traders whether they believed the United States would fall into a recession in 2023. After 200 votes, 72 percent believe it will.

Poll Asking Traders About the Probability of a US Recession in 2023

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Poll from Twitter.com, @JohnKicklighter

Looking to the economic docket, there is a run of notable developments for which we should keep track. In the background, keep in mind that the Chinese markets will be offline for the whole week in celebration of the New Year. However, considering the Chinese markets are disconnected from Western markets, it is unlikely to exert a significant influence on global speculative discovery. On the monetary policy from, the Bank of Canada rate decision is the most pointed event, but its breadth of influence is narrow. The PCE deflator due Friday is the Fed’s favorite inflation indicator, but it hasn’t registered big response from the market – likely due in part to its Friday release time. There are plenty of growth-oriented updates from January PMIs on Tuesday to US earnings with Microsoft’s update at the top of the heap, but the top listing has to be the US 4Q GDP release on Friday. According to the consensus economist forecast, the US is expected to have grown an annualized 2.6 percent through the final quarter of 2022. There is likely a skew to the scenarios around this event risk. If the data is strong, it can be read as justification for the Fed to keep pushing the fight against inflation with higher interest rates. If it is weak, risk aversion can kick in (which would also benefit the Dollar’s safe haven status).

Top Global Macro Economic Event Risk for Next Week

image3.png

Calendar Created by John Kicklighter

When it comes to the Dollar, there is an argument to be made that it is under genuine pressure that warrants a progressive depreciation – an economic outlook that is significantly weaker than counterparts; default risk with the debt ceiling brinkmanship or international diversification away from the Greenback among them. That said, I believe much of the tumble the DXY Index has registered these past few months is the result of a speculative retreat on the preceding rally charged by the combination of risk aversion and the leading interest rate charge from the Fed. Unwinding excess premium is by its nature a limited engagement when the over-extension is resolved. Considering the Dollar retraced half of its nearly two-year climb in just a few months (we are at the midpoint of the 2021-2022 run), questions about how over-extended the market was are reasonable.

Chart of DXY Dollar Index with 100 and 200-Day SMAs (Daily)

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When looking to the Dollar’s potential, there are two speeds to evaluate. There is EURUSD which has worked its way into an exceptionally tight six-day trading range immediately after breaking a high-profile resistance at 1.0750. That leaves speculative interests in a lurch. I am monitoring that pair for a break regardless of direction as the congestion is itself extreme. Alternatively, there are pairs that more distinctly highlight the exaggerated tempo of the Dollar’s selloff and thereby better positioned to evaluate its larger bearing. For that perspective, I’m monitoring USDJPY which posted its most aggressive three-month slide since the height of the 2008 Great Financial Crisis. With a very explicit descending trend channel, the technical boundaries make for a distinctive evaluation.




of clients are net long.




of clients are net short.

Change in

Longs

Shorts

OI

Daily
-18%
18%
-2%

Weekly
-18%
22%
-1%

Chart of USDJPY with 20 and 500-Day SMAs, 60-Day Rate of Change (Daily)

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Australian Dollar, Dow Jones at Risk as Fed Officials Stress Tight Policy Ahead

Australian Dollar, AUD/USD, Dow Jones, Hawkish Fedspeak – Asia Pacific Market Open:

Australian Dollar fell Thursday as risk aversion sank Dow JonesHawkish Fedspeak was a key driver, Asia-Pacific markets at riskAUD/USD remains above the 20-day Simple Moving Average

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Asia-Pacific Market Briefing – Australian Dollar Vulnerable to Risk Aversion

The sentiment-linked Australian Dollar underperformed against its major counterparts over the past 24 hours. It began with a disappointing employment report, where Australia unexpectedly lost jobs in December as unemployment ticked slightly higher. While this may induce less-hawkish Reserve Bank of Australia policy expectations, the labor market remains historically tight.

Risk aversion was the predominant theme overnight as stock exchanges across Asia, Europe and North America saw losses. On Wall Street, the Dow Jones and Nasdaq 100 fell -0.76% and -0.96%, respectively. If losses are held into the end of this week, the -3.6% decline in the Dow Jones will end up being the worst 5-day performance since the middle of September.

Helping drive risk aversion was ongoing hawkish commentary from the Federal Reserve. Fed Vice Chair Lael Brainard said that the central bank needs a ‘sufficiently restrictive’ policy for some time. The market continues to be increasingly at odds with what the central bank is envisioning. Softer US retail sales and PPI data earlier this week was a key culprit.

Heading into Friday’s Asia-Pacific trading session, New York Fed President John Williams noted that policy has ‘more work to do’ to lower inflation. He added that it is critical they ‘stay the course’ until the job is done. As such, this is leaving markets at risk over the remaining 24 hours. If sentiment continues deteriorating, pushing regional indices like the ASX 200 and Nikkei 225 lower, the Australian Dollar looks increasingly vulnerable.

Australian Dollar Technical Analysis

Looking at the daily chart, AUD/USD rejected resistance at 0.7009 earlier this week as prices turned cautiously lower. Immediate support is a combination of the 0.6893 inflection point as well as the 20-day Simple Moving Average (SMA). Breaking lower exposes the 50-day line towards the 61.8% Fibonacci retracement level at 0.6768.

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AUD/USD Daily Chart

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— Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com

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Australian Dollar Dipped After Slight Miss on Jobs Data. Where to for AUD/USD?

Australian Dollar, AUD/USD, US Dollar, Employment, – Talking Points

The Australian Dollar lost ground after jobs numbers disappointedDespite the miss, the Australian labour is tight and might impact CPIThe US Dollar continues to hold sway. Will it allow AUD/USD to make a new high?

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The Australian Dollar had a look lower after the unemployment rate came in at 3.5% for December against 3.4% previously and forecast.

There were -14.6k fewer jobs which were below the 25k forecast to be added and 58k prior.

Although a small miss, the unemployment rate continues to linger near multi-generational lows. Today’s numbers show that the labour market remains robust despite the Reserve Bank of Australia lifting the cash rate 3% from the pandemic emergency low.

The bank has stepped back large rate hikes and the futures market has a 50-50 chance of a 25 basis-point hike priced in for their February 7th monetary policy meeting.

Ahead of that meeting, the crucial fourth quarter CPI print will be released on Wednesday next week the 25th of January. The RBA has said that they expect it to rise to 8% later this year and if the price pressures move toward there sooner than they anticipate.

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This would present a conundrum for the RBA and the projected rate path. Across the Pacific, the Federal Reserve continues to make it clear that it is going to continue tightening.

This became apparent overnight when US retail sales and PPI data were weaker than anticipated. The US Dollar initially softened and sent AUD/USD to a six-month peak at 0.7063.

Then several Fed speakers reiterated their hawkish stance and the ‘big dollar’ rallied across the board and the Aussie Dollar collapsed in the process. They mostly cited a 25 bp rise in rates as being appropriate rather than larger ones.

The Fed also has its Federal Open Market Committee (FOMC) meeting to decide on monetary policy and the market is expecting a 25 bp hike there on the 1st of February. The post-meeting commentary will be closely scrutinised for hints on rates going forward.

The next few weeks might be vital for AUD/USD and could see some clues for direction into 2023.

AUD/USD REACTION TO DATA

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Please contact Daniel via @DanMcCathyFX on Twitter

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Japanese Yen Crushed as Bank of Japan Disappoints, Policy Settings Left Unchanged

Japanese Yen, USD/JPY, Bank of Japan – Market Alert:

Japanese Yen sinks as Bank of Japan leaves policy unchangedMarkets eyed more policy normalization, which did not happenUSD/JPY shoots towards key falling trendline from October

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The Japanese Yen weakened over 2 percent in the aftermath of January’s Bank of Japan monetary policy announcement. If losses are sustained, this will end up being the best single-day performance for USD/JPY since March 2020. Let us take a closer look at what happened here.

Well as it turns out, nothing much at all. The BoJ left all policy settings unchanged this month. This includes the policy balance rate (maintained at -0.1%) and the 10-year bond yield target of about 0%. Policymakers also mentioned that they would keep on with bond purchases with a degree of flexibility. That underscored the central bank’s intention to continue with yield curve control as planned.

To understand why the Yen swiftly weakened here, you need to go back to what happened in December. Last month, the central bank shocked markets by widening the yield curve band around 0% to plus/minus 50 basis points. That was from +/- 25bps. The central bank also increased asset purchases to JPY9 trillion each month from 7.3 trillion prior.

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Markets viewed this as the central bank taking steps closer toward policy normalization. Skipping forward to last week, a story from Yomiuri Shimbun increased speculation that the central bank could take further steps toward policy tightening. As such, traders were heavily skewed towards some further adjustment today. When that did not happen, those bets were unwound.

So, where to for USD/JPY? Well, the currency seems vulnerable in the near term as markets will likely continue unwinding less-dovish bets that have been building up for the past few weeks. As it stands, the BoJ remains very dovish compared to its major peers. As such, the focus will shift to external factors ahead.

Over the remaining 24 hours, United State retail sales, PPI and industrial production could offer further clues about the health of the economy. Softer figures could see markets continue focusing on a Fed pivot. That may help USD/JPY come down slightly.

Market Reaction to Bank of Japan

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Japanese Yen Technical Analysis

USD/JPY has bounced off the 100% Fibonacci extension level at 127.98 following the Bank of Japan. This follows persistent positive RSI divergence, which was already showing downside momentum fading. That is leaving the pair facing the former 130.39 – 131.73 support zone. The latter may now hold as new resistance. Keep a close eye on the falling trendline from October, which could maintain the downside bias. Otherwise, extending gains places the focus on the 50-day Simple Moving Average (SMA).

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USD/JPY Daily Chart

USD/JPY Daily Chart

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— Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com

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Australian Dollar Bumped on China GDP Data. Where to for AUD/USD?

Australian Dollar, AUD/USD, China GDP, Iron Ore, US Dollar, Fed – Talking Points

The Australian Dollar firmed again after solid China GDP figuresChina’s re-opening is yet to hit the growth numbers but has helped commoditiesThe US Dollar appears vulnerable. Will it boost AUD/USD to a new peak?

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The Australian Dollar leapt toward yesterday’s six-month peak against the US Dollar with China’s GDP much better than forecast.

Chinese GDP printed at 2.9% year-on-year for the fourth quarter against expectations of 1.6% and 3.9% previously.

Other Chinese data was released at the same time, with industrial production for the year to the end of December coming in at 1.3% instead of 0.1% anticipated and 2.2% prior.

Retail sales numbers for the same period were -1.8% well above the -9.0% forecast and -5.9% previously, although still negative.

The GDP numbers capture a locked-down China that re-opened near the end of the quarter. Large outbreaks of Covid-19 materialised rapidly and so the economic benefits may not become apparent for some time.

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Today’s data is very positive news for an economy that has the potential to strengthen further once Covid-19 restrictions are completely lifted and case numbers start to drop.

Prior to the GDP release, the People’s Bank of China (PBOC) injected CNY 504 billion of liquidity via revere repos. This is the most since January 2019.

Markets are already pricing in an expansionary outlook for the world’s second-largest economy with the CSI 300 equity index at its highest level since August.

Commodity markets have also been underpinned with base metals notching up significant gains so far this year. Iron ore and copper, two of Australia’s top exports, are much higher and have added to perceptions of the Aussie Dollar benefitting from the China re-open.

Elsewhere, the US Dollar is under pressure as the market appears to be expecting the Federal Reserve to ease up on its aggressive monetary policy tightening later this year.

This is despite consistent messaging from several members of the Federal Open Market Committee (FOMC) stating that rates will need to go higher and stay there.

Gold is also trading near its highest level since April last year as the precious metals pick up interest from the weaker US Dollar and the broader increasing appetite for metals.

With the China re-opening story and the seemingly endangered status of the ‘big dollar’, it is little wonder that AUD/USD is experiencing some bullish momentum.

CHART – AUD/USD, IRON ORE, COPPER, GOLD, DXY INDEX (USD)

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— Written by Daniel McCarthy, Strategist for DailyFX.com

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Japanese Yen Appreciation Intact After PPI Data Ahead of BoJ Meeting. Lower USD/JPY?

Japanese Yen, USD/JPY, US Dollar, BoJ, YCC, PPI, CPI – Talking Points

USD/JPY continues to test support after making fresh lows last weekJapanese companies are facing higher costs at the factory gateIf the BoJ tighten on Wednesday, will USD/JPY further submerge?

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The Japanese Yen has started the week on steady footing after surging last week to a seven-month high against the US Dollar with USD/JPY trading as low as 127.46 on Friday.

Inflationary data released today might provide a headache for the Bank of Japan at their monetary policy meeting this Wednesday.

Year-on-year PPI to the end of December came in at 10.2%, above forecasts of 9.5% and 9.7% previously. The month-on-month figure for December was 0.5%, above 0.3% anticipated and 0.8% prior. The data revealed upward revisions.

From a macro perspective, a blistering PPI is problematic for corporate Japan with companies left with a dilemma around increasing input costs. They can either pass on the price rises, which will fuel CPI, or they can absorb the cost increases and face margin compression. The latter will be a negative drag on earnings.

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Speculation is swirling on a possible tightening of monetary policy from the BoJ as they move away from an ultra-loose stance.

In December, the BoJ changed its yield curve control (YCC) program by targeting a band of +/- 0.50% around zero for Japanese Government Bonds (JGBs) out to 10 years. They previously targeted +/- 0.25% around zero. The 10-year note is trading around the upper boundary of +0.50%.

Another policy tilt from the BoJ on Wednesday might see further Yen appreciation.

National CPI for December is due out on Friday and a Bloomberg survey of economists is anticipating the figure to match last week’s headline Tokyo CPI read of 4% year-on-year.

USD/JPY TECHNICAL ANALYSIS

USD/JPY broke lower again last week as it remains in a descending trend channel.

The recent sell-off broke below the lower band of the 21-day simple moving average (SMA) based Bollinger Band. This may indicate that bearishness is unfolding.

A close back inside the band might signal a pause in the bearish run or a potential reversal.

Support could be at the previous lows of 127.46 and 126.36. On the topside, resistance might be at the breakpoints of 129.51, 130.40, 130.57, 131,26 and 131.35

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

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