Forex Analysis: Japanese Yen Recovery Looks Likely to Continue

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The Japanese Yen looks likely to continue to recover amid profit-taking before next week’s BOJ rate decision and as risk appetite stumbles.

Talking Points

  • Japanese Yen Outperforms on Profit-Taking, Risk Aversion in Asia
  • S&P 500 Futures Hint Sentiment Likely to Remain Under Pressure
  • US CPI, Fed Beige Book Releases Likely to Pass with Little Fanfare

The Japanese Yen continued to recover as expected in Asian trade as regional stocks fell, boosting demand for the haven-linked currency. Regional stock exchanges fell, reinforcing upward pressure on the haven-linked currency. A variety of catalysts looks to be at work. First, as we discussed earlier in the week, the temporary lull in big-ticket event risk may be giving traders an opportunity to ponder on-coming headwinds from US austerity as the “debt ceiling” and “sequester” deadlines draw closer.

Second, the bar seems set extraordinarily high for next week’s BOJ rate decision after nine weeks of uninterrupted Yen selling. Investors have seemingly priced in a paradigm-shifting dovish turn in monetary policy. If Maasaki Shirakawa and company actually satisfy these lofty expectations, the impetus for speculation will still have been exhausted, leaving the Yen selloff without a driving catalyst. It appears as if the markets are beginning to catch on, sparking profit-taking on short-Yen exposure.On balance, S&P 500 index futures are pointing lower, suggesting overnight trends are likely to carry forward.

Another uneventful day on the European data front shifts the spotlight onward to December’s US CPI report. The headline inflation rate is expected to hold unchanged at 1.8 percent, offering little that can dislodge the standing outlook for Fed policy. The central bank will also release its Beige Book survey of regional economic conditions may offer a better read on overall growth trends in the world’s top economy but its implications going forward are limited at best for now while uncertainty continues to surround the amount of austerity due to hit the economy in the coming months.

Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

23:30

AUD

Westpac Consumer Confidence (JAN)

0.6%

-

-4.1%

23:30

AUD

Westpac Consumer Confidence Index (JAN)

100.6

-

100

23:50

JPY

Machine Orders (MoM) (NOV)

3.9%

0.3%

2.6%

23:50

JPY

Machine Orders (YoY) (NOV)

0.3%

-7.3%

1.2%

23:50

JPY

Domestic CGPI (MoM) (DEC)

0.3%

0.2%

0.0%

23:50

JPY

Domestic CGPI (YoY) (DEC)

-0.6%

-0.7%

-0.9%

0:30

AUD

New Motor Vehicle Sales (MoM) (DEC)

2.2%

-

0.2% (R+)

0:30

AUD

New Motor Vehicle Sales (YoY) (DEC)

17.9%

-

9.8% (R+)

2:00

CNY

Actual FDI (YoY) (DEC)

-4.5%

-2.0%

-5.40%

2:00

NZD

Non Resident Bond Holdings (JAN)

64.0%

-

62.7%

5:00

JPY

Consumer Confidence (DEC)

39.2

-

39.4

Euro Session:

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

7:00

EUR

EU 25 New Car Registrations (DEC)

-16.3% (A)

-10.3%

Low

8:15

CHF

Retail Sales (Real) (YoY) (NOV)

2.9%(A)

2.7%

Low

10:00

EUR

Euro-Zone CPI (MoM) (DEC)

0.4%(A)

-0.2%

Medium

10:00

EUR

Euro-Zone CPI (YoY) (DEC)

2.2% (A)

2.2%

Medium

10:00

EUR

Euro-Zone CPI - Core (YoY) (DEC)

1.5%(A)

1.4%

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3248

1.3378

GBPUSD

1.5998

1.6099

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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