Yen strengthens after strong PPI, dollar remains under pressure

The yen strengthens against the dollar in the Asian session today after the PPI report adds more points for the BoJ to start optimizing monetary policy. Investors in Japan are also feeling the risk of a stimulus exit, pushing the Nikkei down more than -1%. Still, the yen is mixed overall for now. Aussie and Kiwi are the firmer ones so far. The dollar is the weakest, continuing last week’s decline while the European majors are also slightly on the soft side.

Technically, the Swiss franc is clearly lagging behind the greenback again during the rally. USD/CHF actually failed to break out of the range last week. Indeed, a focus for this week would be whether USD/CHF would break the 0.9407 resistance to signal a short-term bottoming out. If the dollar recovers, Swissy is an easier target for now.

In Asia, the Nikkei is down -1.16% at the time of writing. The Hong Kong HSI is up 0.73%. China Shanghai SSE is up 1.44%. The Singapore Strait Times is down -0.19%. The 10-year Japanese JGB yield is up 0.0005 to 0.512.

Bitcoin pressure resistance after regaining 20k

Bitcoin started the year strong, regaining 20,000 handles last week. The total market cap also surged above the $400 billion mark. The move followed broader risk appetite on expectations that the Fed is poised to further slow the pace of tightening. While it’s still early to call for a sustained turnaround, the worst seems to be behind us.

Technically, considering the bullish convergence conditions in the daily and weekly MACD, 15452 should be at least a medium-term bottom. The immediate focus is now on the 21460 resistance. A firm break there will confirm this case and see a further rise back towards the 25198 resistance.

However, to see a trend reversal, Bitcoin needs to break the 55-week EMA (now at 25677) in a fairly determined manner. Otherwise, only the range for a medium-term sideways trade is likely to be set. So 25,000 would be the next level to watch out for.

AUDCAD continues short-term rally and targets 0.96 next

While risk appetite is generally supportive of commodity currencies, Aussie has been outperforming others of late. The renewed acceleration in Australian consumer inflation, as shown in last week’s November monthly CPI data, suggests the RBA has little room for a pause for now. There is also optimism about China’s reopening and the resumption of coal purchases.

The AUDCAD opened the week with solid buying. development should confirm resumption of full advance from 0.8596 low. Short-term outlook remains bullish as long as 0.9142 support holds, even in the event of a pullback. The next target is a 61.8% forecast from 0.8596 to 0.9328 from 0.9142 to 0.9594.

During the move, AUDCAD should also clear the 0.9514 resistance to confirm the completion of the corrective 3-wave decline from 0.9991 (2021 high). That would set the stage for another rally to 0.9991 to resume the rise from 0.8058 (2020 low) in the medium term.

Japan’s PPI rose 10.2%y/y in December, the second-highest on record

Japan’s PPI rose 10.2% yoy in December, accelerating from 9.7% yoy and beating expectations of 9.5% yoy. The reading surpassed 10% for the second time in 2022, marking the second-largest rise on record after September’s 10.3% year-on-year rise.

For 2022, wholesale prices rose by an average of 9.7%, hitting a new record high since comparable data became available in 1981. It’s also twice as fast as in 2021, when a 4.6% increase was reported.

BoJ to mark the week with more inflation and retail data

The BoJ meeting will be the focus of the week. The majority of economists still do not expect any change in monetary policy. Nevertheless, there is some speculation about further optimizations in yield curve control, such as B. Raising the 10-year JGB yield cap to 0.75%. Finally, it is becoming increasingly likely that the BoJ will abandon YCC soon and set the stage for a rate hike later in the year. Even if the central bank does nothing, eyes will be on any news of the way forward.

Reports from the ECB’s December meeting are also being monitored to confirm the news that more rate hikes of 50 basis points are imminent at least in the February and March meetings. Regarding central bank activities, the Fed will also release the Beige Book economic report.

On the data front, US retail sales and PPI; Germany ZEW; Japan CPI; UK Employment, CPI and Retail Sales; Canada CPI and retail sales, Australia employment will be closely monitored. China will also release GDP and December data for Q4.

Here are some highlights of the week:

• Monday: Australia MI Inflation Gauge; Japan PPI, Machine Tool Orders; Canada Manufacturing Sales.
• Tuesday: Consumer Sentiment in Australia Westpac; China GDP, industrial production, retail sales, fixed asset investment; Japan Tertiary Industry Index; Germany CPI final, ZEW economic sentiment; employment in the UK; Canada CPI, Housing Starts; US Empire State Manufacturing.
• Wednesday: BoJ interest rate decision, Japanese machinery orders; UK CPI; Eurozone CPI final; Canada IPPI and RMPI; US Retail Sales, PPI, Industrial Production, Corporate Inventories, NAHB Housing Index, Fed Beige Book.
• Thursday: Trade Balance Japan; employment in Australia; Swiss PPI; ECB session accounts; Canada wholesale; US Philly Fed Survey, Jobless Claims, Building Permits and Housing Starts.
• Friday: New Zealand BusinessNZ Manufacturing; Japan CPI; UK Gfk Consumer Sentiment, Retail Sales; Germany PPI; Canada Retail; Selling Existing Homes in the USA.

Daily USD/JPY Outlook

Daily Pivots: (S1) 127.07; (P) 128.25; (R1) 129.04; More…

The intraday bias in USD/JPY remains on the downside at this point. Current drop from 1,151.93 underway for 61.8% forecast from 151.93 to 133.61 from 138.16 to 126.83. Break there will target the 121.43 Fibonacci level next. On the upside, minor resistance above 129.3 will neutralize the intraday bias first. But outlook remains bearish as long as resistance at 134.76 holds.

Overall, the firm break of the 55-week EMA (now at 131.59) increases the chances of a medium-term bearish reversal, but this is not confirmed yet. Strong support was seen around 61.8% retracement from 102.58 to 151.93 at 121.43 and 38.2% retracement from 38.2% retracement from 75.56 to 151.93 at 122.75 bring about a recovery. But first the 134.76 resistance needs to be broken to indicate a bottom formation. Else remains another decline in favor.

Update of economic indicators