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Action Insight Mid-Day Report

Yen Strengthen Continues after Falling Global Equity Markets

Risk aversion dominates the market today, following sharp decline in Asia and European equity markets. US markets is closed for Martin Luther King day today. Activities may slow a bit but overall sentiments will likely remain unchanged. That is, yen will continue to be firm while other major currencies except the dollar will likely remain weak. Particular weakness will be in the Aussie, which was additionally pressured by weakness in gold prices. Euro, on the other hand will continue to be soft as markets readjusting their expectation on ECB policy path following recent dovish comments from ECB officials.

On the Economic data front, Germany PPI dropped -0.1% mom in Dec, with yoy rate unchanged at 2.5%. Swiss combined PPI dropped -0.1% mom in Dec, with yoy rate unchanged at 3.0% too. Canadian wholesale sales rose 0.3% mom in Nov, missing expectation of 0.5%. Released in Asia, Australia PPI missed expectation and rose 0.6% qoq, w.8% yoy only in Q4.

Two central banks are scheduled to announce rate decisions tomorrow. BoJ is widely expected to announce that they'll leave rates unchanged at 0.5% in the coming Asia session. BoC, on the other hand, is expected to cut rates by 25bps for the second consecutive months to 4.0%.

GBP/JPY's recent decline resumes today and dives further to as low as 205.62 so far. At this point, intraday bias remains on the downside as long as 209.35 minor resistance holds. As discussed before, the whole fall from 251.09 is expected to extend to next downside target of 200 psychological support. On the upside, above 209.35 will indicate that an intraday low is formed and bring consolidation, with risk of recovering to 212.44 resistance. But upside should be limited by 217.30 resistance and bring another fall.

In the bigger picture, an important medium term top is formed at 251.09 after completion of a medium term head and should top pattern (ls: 241.47, h: 251.09, rs: 241.35), with the medium term trend line support taken out too. In other words, the whole up trend from 148.19 should have ended at 251.09 already. Last week's close below 100% projection of 251.09 to 219.32 from 241.35 at 209.58 confirms underlying downside momentum is still strong and will encourage deeper decline to psychological support at 200, which overlaps with next medium term fibo support of 50% retracement of 148.19 (006) to 251.09 (07 high) at 199.64. The current fall will probably extend further to test long term rising trend line (129.32 to 148.19, now at 173.79).

On the upside, above 217.30 will indicate fall from 241.35 has possibly ended. Short term outlook will be turned neutral in such case and more consolidation would be seen before another fall. Nevertheless, break above 230.31 resistance is needed to be the first alert that fall from 251.09 has completed. Otherwise, medium term outlook will remain bearish.