Yen Rebound Stalls But Further Rise Still Likely
Japanese Yen’s rebound halts and retreats in early US session. But overall risk in yen crosses remains on the downside. Yen rose higher earlier today after GDP data from China confirmed to be higher than consensus at 11.1% with CPI rising 3.3%. Strong data prompted speculation of a rate hike from China which sent the stock markets lower. Yen was benefited as carry trade unwinds on risk aversion. The SNB also announced that it has raised its yen holding at the end of Q1 while dollar holding was reduced. Yen was also supported by speculations of rate hike in May after strong services data.
Though some recovery in yen crosses is seen in early US session, risk remains on the downside. GBP/USD has been retreating since making a new 26 years high yesterday while EUR/USD consolidates after making new two year high. Aussie and Kiwi were both pressured too. Further carry trade unwinding will likely put pressure in these majors and commodity pairs.
Data from US saw jobless claim at 339k, higher than expectation of 323k. Conference Board Leading Indicator rebounded by rising 0.1% in Mar after falling for two consecutive months in Jan and Feb. Philly Fed index will be featured next and is expected to rise from 0.2 to 2.0 in Apr.
Canadian dollar edges higher against dollar in early US session after CPI inflation came in slightly higher than consensus with core inflation staying above BoC’s target of 2%. CPI increased 0.8% mom, 2.3% yoy comparing to expectation of 0.7% and 2.2% in Mar. Core inflation increased 0.3% mom, 2.3% yoy. Wholesale trade in Canadian rose 0.8% mom, better than expectation of 0.1%.
EUR/JPY
Daily Pivots: (S1) 160.73; (P) 161.17; (R1) 161.92;
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EUR/JPY recovers mildly after fall from 162.42 reached as low as 159.60 earlier today. As discussed before, a short term top should be formed at 162.42 after 4 hours MACD was dragged below signal line and EUR/JPY has failed to take out medium term and short term channel resistance decisively. Attention is now on short term rising channel support (now at 159.25). Break will encourage deeper decline to 158.01 cluster support (38.2% retracement of 150.75 to 162.42 at 157.96) first. On the upside, above 161.55 will suggest that fall from 162.42 has completed. But it will take a break of 162.42 high to revive short term bullishness. Otherwise, risk remains on the downside.
In the bigger picture, we’re treating the whole year long rise from 130.60 as resumption of the long term up trend with first wave ended at 143.60, subsequent correction ended at 137.167. The third wave up could have ended at 159.63 with a diagonal triangle already. Fourth wave correction has ended at 150.75 and rise from there represents the final advance in this structure. The channeling property of 143.60, 137.16, 159.63 and 150.75 is supporting this case.
Having said that, risk of a medium term reversal is also increasing with EUR/JPY now pressing the medium term channel resistance. Break of the short term channel support indicate that rise from 150.75 has completed and give a serious warning signal that the whole rise rise from 130.60 has ended. Focus will then turn to medium term channel support (now at 152.37). However, sustained break of the mentioned channel resistance will suggest that the underlying outlook is more bullish than we thought and will path the way towards 61.8% projection of 137.16 to 159.63 from 150.75 at 164.64.
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Shing-Ip Tsui is the founder and CEO of
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