Yen Stays Pressured, Euro Sluggish on ECB Comments

Overall outlook in the financial market is unchanged, with Yen selloff as the main theme, as major global treasury yields continue to march higher. Euro is second weakest after ECB officials talked down the threat of inflation. Australian Dollar is trading broadly higher, followed by Kiwi. Dollar, Sterling and Loonie are mixed, with the greenback trading with a lower hand.

Technically, even Swiss Franc surges sharply against Yen as seen in the strong rally in CHF/JPY. Such development suggests that correction from 122.74 has completed at 117.51. Decisive break there will resume larger up trend from 2019 low at 106.71. If happens, there could be another round of upside accelerations in Yen crosses in general.

In Europe, at the time of writing, FTSE is up 0.38%. DAX is down -0.34%. CAC is down -0.19%. Germany 10-year yield is up 0.0293 at -0.119. Earlier in Asia, Nikkei rose 1.60%. Hong Kong HSI rose 1.96%. China Shanghai SSE dropped -0.01%. Singapore Strait Times rose 0.02%. Japan 10-year JGB yield closed up 0.020 at 0.097.

ECB Lane: We’re some distance in terms of medium term from 2% inflation

ECB’s chief economist Philip Lane said today, “the medium-term inflation dynamic is too slow, not too fast.” “We still think we’re some distance in terms of medium term from 2%,” he added. “The trigger for monetary policy action is not there.”

“In addition to rate forward guidance, calibrating the volume of asset purchases also plays an important role in ensuring that the monetary stance is sufficiently accommodative,” said.

“The compression of term premia through the duration extraction channel plays a quantitatively-significant role in determining longer-term yields and ensuring that financing conditions are sufficiently supportive to be consistent with the delivery of our medium-term inflation objective.”

ECB Knot: Rise in inflation largely temporary

ECB Governing Council member Klaas Knot said “I still expect the rise in inflation to be largely temporary, but we have to take other scenarios with structurally higher inflation and higher interest rates into account. Because if we don’t, it could lead to shock price falls in the future.”

“The effect of energy prices on inflation is temporary by nature, as they need to keep rising to keep pushing up inflation”, Knot said. “But inflation is also pushed higher by global supply restraints, which might be less temporary. They could be caused by a readjustment in international trade, as supply chains are spread less across the globe.”

EUR/CAD close to 1.4353 projection level as fall accelerates

Canadian Dollar is extending near term rally, with help from rising oil price as WTI breaks above 81 handle. EUR/CAD is also accelerating down, and it’s now close to 61.8% projection of 1.5783 to 1.4580 from 1.5096 at 1.4353. The reaction to this projection level could set the tone in EUR/CAD for the near to medium term.

Note that firstly, EUR/CAD was previously rejected by 55 week EMA, which is seen as a medium term bearish development. Secondly, the cross has also broken a long term trend line support as seen in weekly chart, which is another bearish development. Sustained break of 1.4353 projection level could bring another round of downside acceleration through 1.4263 support, towards 100% projection at 1.3893.

AUD/JPY accelerating up, to target 85.78 high

AUD/JPY follows other Yen crosses and accelerates higher today. The decisive break of 82.01 resistance firstly confirms resumption of rebound from 77.88. More importantly, it also affirms that correction from 85.78 has completed. Immediate focus is now on 100% projection of 77.88 to 82.01 from 78.82 at 82.95. Strong break there would indicate further upside acceleration and raise the chance that it’s indeed resuming larger up trend from 59.85. Further rise would be seen to 161.8% projection at 85.50, which is close to 85.78 high.

Also, note that AUD/JPY is being support by 55 month EMA, which is a long term bullish sign. That affirms the case that down trend from 105.42 (2013 high) has completed with three waves down to 59.85, on bullish convergence condition in monthly MACD. That is, on resumption, rise from 59.85 should power through 90.29 structural resistance, towards 105.42/107.88 resistance zone in the medium to long term. But of course, let’s see how it goes with 85.78 first.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1549; (P) 1.1568; (R1) 1.1593; More

EUR/USD is still bounded in consolidation from 1.1528 temporary low, and intraday bias remains neutral. Further fall is still in favor as long as 1.1639 minor resistance holds. Break of 1.1528 will resume larger decline towards 1.1289 medium term fibonacci level. On the upside, break of 1.1639 resistance, however, will indicate short term bottoming. intraday bias will be turned back to the upside for stronger rebound.

In the bigger picture, sustained break of 1.1602 will argue that rise from 1.0635 (2020 low) has completed at 1.2348. Deeper fall would be seen to 61.8% retracement of 1.0635 to 1.2348 at 1.1289. Note also that rejection by 55 week EMA (1.1830) also carries medium term bearish implication. Firm break of 1.1289 will pave the way to retest 1.0635 low. On the upside, though, break of 1.1908 resistance will revive medium term bullishness and turn focus back to 1.2348 high.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
6:00 JPY Machine Tool Orders Y/Y Sep 71.90% 86.20% 85.20%
8:00 EUR Italy Industrial Output M/M Aug -0.20% 0.50% 0.80% 1.00%

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