ACT: Mid-Day Report: Yen Selloff Continues ahead of BoJ Meeting
Mid-Day Report: Yen Selloff Continues ahead of BoJ Meeting
Selling of dollar and yen remain the main theme in the markets today but we'd like to point out that the selloffs are mainly centered around European majors. While global stock markets are strong today, commodity currencies so far don't follow. Yen's weakness will likely continue for the rest of US session as markets are awaiting BoJ's announcement tomorrow. It's widely expected that BoJ would add up to another JPY 10T to its JPY 91T asset purchase and lending program. There are some speculation that the central bank would revise it's 1% inflation target but chance is a bit slim. But after all, as LDP has now regained power, markets are expecting more aggressive easing starting as soon as the early part of next year.
In US, Fitch warned that "failure to avoid the fiscal cliff... would exacerbate rather than diminish the uncertainty over fiscal policy, and tip the US into an avoidable and unnecessary recession.". And the rating agency noted that "there would be an increased likelihood that the U.S. would lose its AAA status" as such scenario would "erode medium-term growth potential and financial stability". Republican House Speaker Boehner is pushing for what he called a "plan B" regarding fiscal cliff. Boehner's proposal calls on House to vote on the measure that would keep tax rates unchanged for Americans with income below $1m per annum. That's sharply higher than Obama's threshold of $400k. While Boehner emphasized that he's not cutting off talks with Obama, the Democrats criticized that Boehner is walking away just when a agreement is within rich.
The BOE minutes for the December meeting indicated that the MPC members voted unanimously to leave the Bank rate at 0.5%. David Miles was, however, the only out of the 9 members who opposed keeping the asset purchase program at 375B pound. He preferred to boost the QE program by +25B pound to a total of 400B pound. On the economic front, policymakers expected growth to remain flaggy in the near-term but inflation might exceed +2% in the coming year. More in BOE Voted 9-0 To Leave Bank Rate Unchanged. David Miles Favored Increasing QE.
In Europe, German Ifo business climate rose for a second month to 102.4 in December and beat expectation of 102. Expectation gauge also rose more than expected to 97.9. Nonetheless, current assessment gauge unexpectedly dropped to 107.1. S&P raised Greece's credit rating back to B-, up from selective default, after the country has completed its bond buy-back program. Greece's rating was cut to selective default, down from CCC, earlier this month due to the program. S&P said that "the stable outlook balances our view of euro zone member states' determination to support Greece's euro zone membership and the Greek government's commitment to a fiscal and structural adjustment against the economic and political challenges of doing so." But it also warned that "even after the buyback, Greece's end-2012 net debt-to-GDP ratio of over 160 percent of GDP remains onerous."
Data from US saw housing starts dropped to 861k in November while building permits rose to 899k. Canadian wholesale sales rose 0.9% mom in October. UK CB reported sales dropped to 19 in December. , New Zealand current account deficit came in slightly widened than expected at NZD -4.418b in Q3. Australia Westpac leading indicator rose 0.1% mom in October. Japan trade deficit widened to JPY -0.87T in November, ,all industry index rose 0.2% mom in October.
USD/CHF drops further to as low as 0.9098 so far today and intraday bias remains on the downside. Current from 0.9512, which is part of the decline from 0.9971 should target 61.8% projection of 0.9971 to 0.9214 from 0.9512 at 0.9044 next. On the upside, above 0.9154 minor resistance will turn bias neutral and bring consolidations. But recovery should be limited by 0.9240 resistance and bring another fall.
In the bigger picture, medium term rebound from 0.7065 is viewed as a corrective move and should have completed after hitting 0.9916 resistance (61.8% retracement of 1.1730 to 0.7065 at 0.9948). Deeper decline is expected to 38.2% retracement of 0.7065 to 0.9971 at 0.8861. We'll hold on to this bearish view as long as 0.9512 resistance holds.
