Market Overview. With the yen continuing to strengthen, the chatter about intervention from the Bank of Japan is mounting. Will the BoJ act to help reverse the flow which has the potential to significantly negatively impact on Japanese exporters? The Bank of Japan’s Governor Kuroda has been speaking this morning and officials are talking up the prospect of some sort of move.
Financial markets have begun the week in a rather drab manner, with marginal weakness in European markets despite a mixed to slightly positive outlook across Asian markets which followed the tepid gains on Wall Street at the end of last week. Chinese inflation has done little to generate any real change in outlook for PBoC monetary policy with a mixed bag of data. The headline CPI data in at 2.3% which was below the 2.5% expected, however the factory gate PPI inflation was slightly better at 4.3% down from 4.9% a month earlier and better than the 4.6% expected by the market. The inflation data kicks off a heavy week of data for China as traders look ahead to crucial data on trade, growth, industrial production and retail sales.
There is little real direction on forex markets, although it is interesting to see the yen continues to strengthen against the US dollar (which also helped to drive further slide in the Nikkei 225). Having started to gain traction last week, the gold price has had a positive start to the week, whilst oil is a touch mixed today, despite the decline in the US oil rig count on Friday.
There is little on the economic calendar, but the markets will continue to monitor events over the yen strength.
Chart of the Day – GBP/JPY
The outlook for Sterling/Yen is looking all rather precarious. Last week the selling pressure accelerated downwards and there was a breach of the key support of the February low at 154.75. This has now opened the downside for a move towards the mid-2013 key pivot band around 147.50. On Friday we saw a rather tentative attempt at a technical rally that has left a rather disappointing candlestick for the bulls. The RSI is below 30 but there is certainly no reason to think that it cannot go any lower, with the December/January sell-off hitting a low at 9.5 and the RSI below 30 for a total of 5 weeks. In fact, the concern is that the MACD lines have only just crossed lower again and there is further downside potential in the coming days/weeks. The inference is that rallies should be seen as a chance to sell now. The old support of the February low at 154.75 is the initial resistance (with Friday’s high at 154.20), with further resistance at 156.20 and more importantly at 158.50. However, the hourly chart shows how the disappointing rally has already started to run out of steam and this would suggest that any pop to the upside should be seen as that chance to sell. The main caveat to this outlook is the BoJ intervening in the forex markets.
