Yen gains on hawkish BoJ bets

The USD edged lower yesterday as the US retail sales growth rate for December slowed down beyond expectations implying an easing of the demand side of the US economy. Also, the weekly US initial jobless claims rose beyond expectations showing a loosening of the US employment market. On the optimistic side, the Philly Fed Business index for January skyrocketed implying increased economic activity. Today we note the release of the US construction data, for December, which are expected to send out some mixed signals.

JPY got some support against the USD yesterday. JPY traders seem to be increasingly expecting BoJ to raise rates in the coming week and it’s characteristic that JPY OIS imply a probability of 78% for such a scenario to materialise. It should be noted that BoJ Governor Ueda, stated on Wednesday that the bank will debate whether to raise interest rates in its next meeting, maybe implying that it will be a “live” meeting and enhancing the hawkish sentiment among market participants. Also, BoJ Deputy Governor Himino, stated on Tuesday that it would “not be normal” for real interest rates to remain negative once Japan had overcome shocks and factors that caused deflation. Overall, should we see the market’s expectations for the bank to hike rates in its meeting next week being enhanced, we may see also support for JPY building up.

USD/JPY dropped further yesterday, aiming for the 154.65 (S1) support line yet corrected higher in today’s Asian session. We see the case for bearish tendencies of the pair yet we would require a more intense bearish movement before adopting a bearish outlook, hence our current sideways motion is still maintained. The RSI indicator has breached slightly the reading of 50, indicative of the bearish tendencies yet corrected a bit higher, implying a relative indecisiveness of market participants for the pair’s direction. Also the Bollinger bands continued to converge reflecting the lower volatility of the pair’s price action, and its characteristic that the pair’s price action corrected higher after briefly breaching the lower Bollinger band. For a bearish outlook we would require the pair to break the 154.65 (S1) support line and start aiming for the 151.35 (S2) support level. Should the bulls take over, we may see USD/JPY rising, breaking the 158.45 (R1) resistance line and start aiming for the 161.90 (R2) resistance base.

In China, the GDP rate for Q4 was released and the rate accelerated beyond market expectations reaching 5.4%yy. The release verified that the Chinese economy surpassed the official target for growth, of the Chinese government for 2024, of 5%yy and could enhance the market’s confidence, albeit some analysts continue to feel uneasy with the prospects of the Chinese economy, given that Trump is to be inaugurated on Monday and intends to slap tariffs on Chinese products imported in the US. We see the case for tensions in the US-Sino relationships to escalate and if so could weigh on CNH and AUD.

AUD/USD edge lower aiming turning towards the 0.6170 (S1) support line. We maintain a bearish outlook for the pair as long as the downward trendline incepted since the 30 of September, remains intact. Also, we note that the RSI indicator remains below the reading of 50 implying the presence of a bearish predisposition of the market for the pair. Should the bears remain in charge, AUD/USD could break the 0.6170 (S1) support line, aiming for the 0.5980 (S2) support level. For a bullish outlook we would require the pair to reverse direction by breaking initially the prementioned downward trendline, and continue to break the 0.6270 (R1) resistance line, thus paving the way for the 0.6350 (R2) resistance hurdle.

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Today we note the release of Euro Zone’s final HICP rate for December, while ECB’s Cipollone speaks. In the American session, we get from the US the industrial output growth rate for the same month. In Monday’s Asian session, we note the release of Japan’s machinery orders growth rate for November while in China PBoC is to release its interest rate decision.