Yen Selloff resumes, RBNZ and BoC will walk this week

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The Yen’s sell-off resumed in the Asian session with USD/JPY hitting a new recent high. The ruling coalition of the Liberal Democratic Party and its junior partner Komeito won a landslide victory in Japan’s upper house elections. There could be sympathy votes for the tragic death of former Prime Minister Shinzo Abe. But it’s also seen as a nod to Abe’s legacy of bringing Japan back as a “normal” country with a stronger military and an alliance with the United States. The dollar is currently the strongest, followed by the Swiss franc and then the kiwi. On the other hand, the Aussie is the second weakest after the Yen, followed by the British Pound.

Technically, one of the main focus for the week is whether the EUR/USD downtrend would gain more momentum from the current level. The key level to monitor is parity. The break of the support of 1.0348 turned resistance will be the first sign of stabilization and will bring consolidations. But a lasting break in the parity could lead to an even deeper sell-off, risking an acceleration downside.

In Asia, at the time of writing, the Nikkei is up 1.26%. Hong Kong’s HSI index is down -2.74%. China Shanghai SSE is down -1.46%. The Singapore Strait is up 0.06%. Japan’s 10-year JGB yield is down -0.005 to 0.246.

BoJ Kuroda: We will not hesitate to take additional monetary easing measures if necessary

BoJ Governor Haruhiko Kuroda warned of “tremendous uncertainty” over the economic outlook due to soaring commodity prices. Although the economy is showing signs of weakness, overall the trend is still improving.

“We will not hesitate to take additional monetary easing measures if necessary,” he added, repeating that the short-term and long-term interest rate targets “move at current or lower levels”.

Reported by Japan, M2 rose 3.3% YoY in June versus expectation of 3.4% YoY. Machinery orders fell -5.6% m/m in May, from -5.5% m/m.

NZD/USD in a tight range, eyeing support from the 0.6098 projection level

NZD/USD remains in a tight range above the temporary low of 0.6123, expecting a rate hike from the RBNZ later in the week. There is the prospect of a rebound from the medium term projection level at 0.6098 (100% projection 0.7463 to 0.6528 from 0.7033). But a break of the minor resistance at 0.6251 is needed to be the first sign of a dip, while a firm break of the resistance at 0.6395 is needed to confirm. However, a sustained break of 0.6098 would be more likely to accelerate the decline towards a projection of 161.% at 0.5520, which is close to 0.5467 (2020 low).

AUD/CAD remains in a downtrend, further downside risk

The Canadian dollar has recently outperformed other commodity currencies and remains generally firm. There are prospects for the Loonie rally to continue if the BoC opts for a rate hike of 75 basis points this week, instead of 50 basis points.

As for the AUD/CAD, it remains well within the downtrend from 0.9991 (2021 high). Outlook remains bearish as long as 0.8916 minor resistance holds. The break of the temporary low of 0.8744 will indicate a resumption of the downtrend. The next medium term objective will be a 100% projection of 0.9991 to 0.8906 from 0.9514 to 0.8429.

Nevertheless, a firm break of 0.8916 will indicate a short-term bottom and bring a stronger bounce first.

RBNZ and BoC rate hikes, US CPI and retail sales

Two central banks are expected to hike rates this week. The RBNZ is expected to increase the official exchange rate by another 50 basis points to 2.50%. According to the RBNZ’s own forecast variables in May, the OCR could reach 3.9% in the second quarter of 2023, before gradually falling back in the second half of 2024. There is no indication that the RBNZ would deviate from this. Thus, a warmongering position must be maintained.

Opinions on whether the BoC would rise 50bps or 75bps this week are mixed. Governor Tiff Macklem remarked on June 9, “We may need to take further action on interest rates to get inflation back on target. Or we may have to move faster, we may have to take a bigger step. But I don’t know if that would really translate to a bigger hike this time. The BoC will also release a new monetary policy report with economic projections.

On the data front, the US CPI and retail sales are likely to get the most attention. But the focus will also be on Germany ZEW, UK GDP and a slew of data from China including trade balance, GDP, retail sales and industrial production. Here are some highlights of the week:

  • Monday: machine orders in Japan; Retail sales in Italy.
  • Tuesday: Japan PPI; Australia Westpac Consumer Sentiment, NAB Business Confidence; Germany ZEW.
  • Wednesday: RBNZ Rate Decision; China’s trade balance; IPC Final Germany; UK GDP, production, trade balance; industrial production in the euro zone; US CPI; BoC rate decision; Fed Beige Book.
  • Thursday: inflation expectations in Australia, employment; Swiss PPI; manufacturing sales in Canada; US PPI, Unemployment Insurance claims.
  • Friday: New Zealand Industry BusinessNZ; China’s GDP, Retail Sales, Industrial Production, Fixed Asset Investment; Japan Tertiary Industry Index; euro zone trade balance; Wholesale sales in Canada; US Retail Sales, Empire State Manufacturing, Import Prices, Industrial Production, University of Michigan Consumer Sentiment, Business Inventories.

USD/JPY Daily Outlook

Daily Pivots: (S1) 135.42; (P) 136.00; (R1) 136.66; After…

The breakout of 136.99 suggests a resumption of the USD/JPY uptrend and the intraday bias is back to the upside. Sustained trading above 136.99 will confirm and target the 100% projection from 114.40 to 131.34 from 126.35 to 143.29. For now, the outlook will remain bullish as long as the support at 134.73 holds, in case of a pullback.

Overall, the current rally is seen as part of the long-term uptrend from 75.56 (2011 low). The next target is a 100% projection from 75.56 (2011 low) to 125.85 (2015 high) from 98.97 to 149.26, which is close to 147.68 (2015 high). 1998). This will remain the preferred case as long as the support at 126.35 holds.

Economic Indicators Update

GMT Ccy Events Real Provide Previous amended
23:50 JPY Money supply M2+CD Y/Y June 3.30% 3.40% 3.20% 3.10%
23:50 JPY M/M machine orders May -5.60% -5.50% 10.80%
06:00 JPY Machine Tool Controls Y/Y Jun P 23.70%
08:00 USD Italy Retail sales M/M May 0.70% 0.00%
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