Yen and Dollar are trading mildly lower in quiet trading in Asia, which is not totally back from holiday yet. Australian Dollar is the stronger one, followed by other commodity currencies and Sterling. On the other hand, Euro and Swiss Franc are on the softer side. Market activity will remain generally subdued this week, with many traders away while the economic calendar is extremely light.

Technically, one development to watch through the new year is whether Yen’s weakness will return. For example, AUD/JPY’s decline from 99.32 might have completed with three waves down to 87.00. That came after meeting 100% projection of 99.32 to 90.81 from 95.73. Sustained break of 90.81 support turned resistance will open up further rise to 95.73 resistance and above. Let’s see.

In Asia, at the time of writing, Nikkei is up 0.29%. Hong Kong is on holiday. China Shanghai SSE is up 0.77%. Singapore Strait Times is up 0.37%. Japan 10-year JGB yield is up 0.0151 at 0.464, heading back towards 0.5% cap.

ECB Knot: We are just at the beginning of the second half

ECB Governing Council member Klaas Knot said in an FT interview that in the five monetary policy meetings from now till July, the central bank would deliver “quite a decent pace of tightening”.

“The risk of us doing too little is still the bigger risk,” Knot said. “We are just at the beginning of the second half.”

By slow the pace from 75bps to 50bps, “we grant ourselves a little bit more time along the way as we tighten into 2023 to evaluate the effects of our tightening,” he added.

Knot also said recent economic data indicated that recession in the bloc would be “short and shallow” and the “worst… may already be behind us”.

BoJ Kuroda: Japan approaching a critical juncture away from low inflation and growth

BoJ Governor Haruhiko Kuroda said yesterday that widening of the allowed band for 10-year JGB yield was “definitely not a step toward an exit” of ultra loose monetary policy.

“The Bank will aim to achieve the price target in a sustainable and stable manner, accompanied by wage increases, by continuing with monetary easing under yield curve control,” he added.

“Labour market conditions in Japan are projected to tighten further, and firms’ price- and wage-setting behaviour is also likely to change,” Kuroda said. “In this sense, Japan is approaching a critical juncture in breaking out of a prolonged period of low inflation and low growth.”

Japan retail sales rose 2.6% yoy in Nov, unemployment rate down to 2.5%

Japan retail sales rose 2.6% yoy in November, below expectation of 3.8% yoy. The growth rate slowed from 4.4% in October and 4.8% in September. Nonetheless, that’s still the ninth straight month of expansion.

Released separately, unemployment rate fell from 2.6% to 2.5% in November, better than expectation of 2.6%. The jobs-to-applicants ratio was unchanged from October’s 1.35. This gauge of job availability stayed at the highest level since march 2020.

Looking ahead

The economic data is empty in European session. Later in the day, US will release goods trade balance, and house price index.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.0615; (P) 1.0628; (R1) 1.0652; More…

EUR/USD recovers after drawing support from 4 hour 55 EMA but stays below 1.0733 resistance. Intraday bias remains neutral for the moment. Further rally is expected as long as 1.0481 resistance turned support holds. Firm break of 61.8% projection of 0.9729 to 1.0481 from 1.0289 at 1.0754 will pave the way to 100% projection at 1.1041. However, firm break of 1.0481 will confirm short term topping and bring deeper fall to 1.0289 support.

In the bigger picture, focus stays on 38.2% retracement of 1.2348 (2021 high) to 0.9534 at 1.0609. Rejection by 1.0609 will suggest that price actions from 0.9534 medium term bottom are developing into a corrective pattern. Thus, medium bearishness is retained for another fall through 0.9534 at a later stage. However, sustained break of 1.0609 will raise the chance of trend reversal and target 61.8% retracement at 1.1273.

Economic Indicators Update