The yen cuts its gains in quiet Asia

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Markets are relatively calm overall in Asian trading today and trading could be subdued with the US on vacation. The Canadian dollar is resilient, with WTI oil remaining firm at around 84 years. The euro and the dollar are both strengthening noticeably. On the other hand, the Yen, Aussie and Kiwi are softening. In particular, traders appear to be trimming their positions in the yen ahead of the BoJ’s policy decision and statement tomorrow.

Technically, while the USD/JPY selloff was steep last week, EUR/JPY and GBP/JPY remain only in a consolidation range. In particular, the GBP/JPY is holding comfortably above the minor support at 154.86. We will focus on the 131.59 and 157.12 resistances in EUR/JPY and GBP/JPY today. Break there will resume recent rally in the two crosses. If that happens, we will see if EUR/USD and GBP/USD break through the corresponding levels at 1.1482 and 1.3748.

In Asia, at the time of writing, the Nikkei is up 0.77%. Hong Kong’s HSI index is down -0.59%. China Shanghai SSE is up 0.59%. The Singapore Strait is up 0.08%. Japan’s 10-year JGB yield is up from 0.0044 to 0.155.

China’s GDP grew 4.0% year-on-year in the fourth quarter, retail sales weak

China’s GDP grew 4.0% year-on-year in the fourth quarter, much faster than expected 3.3% year-on-year. On a quarterly basis, GDP rose 1.6% q/q, above expectations of 1.1% q/q. For 2021 as a whole, GDP grew by 8.1%, slightly above expectations of 8.1%.

In December, industrial production rose 4.3% year-on-year, above expectations of 3.6%. Retail sales rose 1.7% year-on-year, below expectations of 3.7% year-on-year. Investment in fixed assets rose 4.9% year-on-year, slightly above expectations of 4.8%.

The National Bureau of Statistics said, “We should be aware that the external environment is more complicated and uncertain, and the national economy is under the triple pressure of demand contraction, supply shock and weakening of expectations”.

Also in China, steel production fell for the first time in six years in 2021, down -3% from 1.065 billion tonnes to 1.03 billion tonnes. The birth rate dropped to a record high of 7.52 births per 1,000 people in 2021, from 8.52 births per 1,000 people in 2020.

Bitcoin remains in sideways consolidation, still defending 40k

Bitcoin now remains in consolidation above the short-term low of 39636, after quickly defending the 40k handle. Considering it is also just above the structural support at 39559, the consolidation may extend for some time. But the outlook will remain bearish for a further drop to 61.8%, projecting 68986 to 41908 from 52101 to 35366 before completing the decline from the 68986 high.

The timing of the break down will depend on the eventual reaction to the 4:55 EMA (now at 43211) that it is struggling with. A strong break above the 4:55 a.m. EMA will bounce stronger to the 55-day EMA (now at 48230) first, and be rejected there to lower the trend recovery. Meanwhile, rejection by the current level could cause a fairly quick bearish break through 396363 to the mentioned 35366 target.

The BoJ will highlight the week, with a batch of UK data

The BoJ meeting is the focus of the week although no policy changes are expected. There are talks that debates over telegraphing a rate hike have already begun among policymakers. Although the BoJ is still far from realizing it, it could start to reinforce market expectations for a possible rise, by gradually adjusting the forecasts. It could also be argued that a hint of rising rates could help solidify positive inflation expectations. Meanwhile, Japan’s CPI will also be watched closely.

Elsewhere, the UK will also release a batch of data including employment, inflation and retail sales. But markets are unsure whether to ignore them, much like the strong GDP data released last week. Germany’s ZEW, Canada’s CPI and retail sales, Australia’s employment and China’s GDP will also be watched closely.

Here are some highlights of the week:

  • Monday: Machinery orders in Japan, tertiary industry index; China’s GDP, Retail Sales, Industrial Production, Fixed Asset Investment; Purchases of Canadian foreign securities, manufacturing sales, Bank of Canada business outlook survey.
  • Tuesday: New Zealand Business Confidence NZIER; BoJ Rate Decision; employment in the UK; Swiss PPI; Germany ZEW economic sentiment; Housing starts in Canada; US empire state manufacturing plant, NABH housing index.
  • Wednesday: Consumer Sentiment Australia Westpac; IPC Final Germany; UK CPI, PPI; Euro area current account; IPC Canada, wholesale; Housing starts and building permits in the United States.
  • Thursday: Japan’s trade balance; Employment in Australia; Euro zone final CPI, ECB meeting accounts; PPI Germany; US unemployment insurance claims, Philly Fed survey, existing home sales.
  • Friday: BusinessNZ New Zealand Manufacturing Index; Japan CPI, BoJ meetings; UK Gfk consumer confidence, retail sales; Canadian retail sales, new housing price index.

GBP/JPY Daily Outlook

Daily Pivots: (S1) 155.59; (P) 156.11; (R1) 156.75; Following…

The intraday bias on GBP/JPY remains neutral for now, and the consolidation from 157.74 may continue. Overall further upside is still expected with 154.86 support intact. On the upside, the decisive break of the 158.19 high will resume a broader uptrend at the 167.93 long-term Fibonacci level. On the downside, minor support below 154.86 will bring the intraday bias back down for a deeper pullback.

Overall strong rebound from key structural support at 148.93 keeps medium term uptrend. The firm break of the 158.19 high will resume the entire uptrend from 123.94 (2020 low) at a 61.8% retracement from 195.86 to 122.75 at 167.93. Nonetheless, a firm break of 148.93 will bring a deeper correction to the 38.2% retracement from 123.94 to 158.19 to 145.10, and perhaps even lower, as a correction to the uptrend from 123.94 at least.

Economic Indicators Update

GMT Ccy Events Real Provide Previous amended
23:50 JPY Machine orders M/M Nov 3.40% 1.40% 3.80%
00:01 GBP Rightmove M/M House Price Index January 0.30% -0.70%
02:00 CNY GDP Y/Y Q4 4.00% 3.30% 4.90%
02:00 CNY Retail sales A/A Dec 1.70% 3.70% 3.90%
02:00 CNY Industrial production A/A Dec 4.30% 3.60% 3.80%
02:00 CNY Fixed Asset Investment YTD Y/Y Dec 4.90% 4.80% 5.20%
04:30 JPY Tertiary industry index M/M Nov 1.10% 1.50%
11:00 USD German Buba Monthly Report
13:30 GBP NIESR GDP Estimate (3M) Dec 0.90%
13:30 BODY Manufacturing Sales M/M Nov. 1.70% 4.30%
15:30 BODY BoC Business Outlook Survey
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