Following the latest Consumer Price Index from Japan for December, we now have the Bank of Japan Minutes.
BoJ December Monetary Policy Meeting – Full Minutes
- Risks to the economy and inflation Warrant attention.
The Bank of Japan publishes a study of economic movements in Japan after the actual meeting. These meetings are held to review economic developments inside and outside of Japan and indicate a sign of new fiscal policy. Any changes in this report tend to affect the JPY volatility. Generally speaking, if the BoJ minutes show a hawkish outlook, that is seen as positive (or bullish) for the JPY, while a dovish outlook is seen as negative (or bearish).
China’s outbreak of coronavirus has been weighing on the risk-tone off-late. While the internal death toll due to the humanly transmitted virus has officially reached 17, an increase in the registered cases from Japan and Sydney also negatively affects the market’s trade sentiment.
Read: Latest on coronavirus: Beijing cancels Chinese New Year temple fairs, suspected case in Scotland
With this, the US 10-year treasury yields stay on the back foot around 1.74% whereas S&P 500 Futures also cut the early-Asia gains to 3,328. Further, prices of gold, currently around $1,563, as well as USD/JPY, close to 109.60, are also affected due to the risk aversion wave.
Some of the latest news concerning the virus outbreak:
- Australian Health authorities have confirmed a person in Sydney is in quarantine after possibly contracting coronavirus.
- Japan’s Health Ministry confirms the second case of a Chinese national living in the Asian country.
- Sources: Wuhan medical staff being infected at a faster pace than reported – South China Morning Post (SCMP)
While news like these keep weighing on the risk-tone, safe-havens are likely catching a breath amid the Asian session.
Japan’s December CPI has been released.
Japan's core consumer prices rose 0.7% in December from a year earlier, government data showed on Friday. The core consumer price index, which includes oil products but excludes fresh food prices, compared with economists' median estimate for a 0.7% annual gain. Stripping away the effect of fresh food and energy, consumer prices rose 0.9% in December from a year ago.
"Inflation pressures remain absent there, with annual headline inflation expected to print at just 0.7%yr in December," analysts at Westpac explained ahead of the event.
- Japan Dec Nationwide core CPI +0.7% YoY - govt (Reuters poll: +0.7%).
- Japan Dec core-core CPI excluding fresh food, energy prices +0.9% YoY - govt. vs0.8% exp and 0.8% prior.
- Japan Dec Nationwide overall CPI +0.8% YoY - govt vs 0.5% prior and 0.4% expected.
The National Consumer Price Index released by the Statistics Bureau is a measure of price movements obtained by comparison of the retail prices of a representative shopping basket of goods and services. These volatile products such as food and energy are excluded in order to capture an accurate calculation. CPI is the most significant way to measure changes in purchasing trends. The purchase power of JPY is dragged down by inflation. Generally a high reading is seen as positive for the JPY.
The Bank of Japan is dovish and that is priced into the yen. Safe haven flows are more supportive than domestic data.
- Gold prices await fresh clues to extend the previous two-day run-up.
- Fears of SARS return, trade war supports the safe-haven’s demand.
- Preliminary activity numbers from the US, Eurozone and the UK will decorate the economic calendar.
Gold stays modestly changed from Thursday’s close while taking rounds to $1,562.5 during Friday’s Asian session. The bullion recently benefited from the market’s risk-off sentiment amid fears emanating from China and trade headlines. However, US dollar gains seem to cap the yellow metal’s upside.
Leading the risk aversion is China’s outbreak of coronavirus. The humanly transmitted disease has so far taken 17 lives and spread out of the Chinese borders to renew the fears of Severe Acute Respiratory Syndrome (SARS) virus spread that took 774 lives in 2002/03. The latest update suggests that Japan confirmed the second case of coronavirus while the World Health Organization (WHO) still believes its too early to term it as an international threat.
On the trade front, markets seem to have diverted from the US-China trade war but the US-EU tussle is gaining the major attention off-late. The reason is the region’s status as the largest customer in the US. Also joining the trade war signals are the US President Donald Trump’s threats to levy tariffs on the UK.
Additionally, US President Trump’s impeachment hearings, as well as the geopolitical noises in the Middle East, also contribute to heavy the trade sentiment.
Investors will now look forward to the key activity numbers from the US, Eurozone and the UK to determine near-term trade direction. It should, however, be noted that the qualitative headlines will still keep the driver’s seat.
Short-term ascending trend channel favors further upside to $1,575 ahead of confronting January 06 high near $1,587 and $1,600 round-figure. Meanwhile, $1,550 and $1,535 could limit immediate declines.
Analysts at ANZ explained that the Reserve Bank of New Zealand should be "feeling pretty comfortable" following CPI lifting 0.5% QoQ in Q4 – in line with ANZ forecasts, but stronger than the market (0.4%) and RBNZ’s November MPS forecast (0.2%).
At 1.9%, annual inflation is running just 0.1%pts shy of the 2% target midpoint, but with non-tradeable inflation expected to remain close to 3% y/y and a lift in tradeable inflation in the pipeline, 2020 should bring a 2-handle.
The RBNZ should be feeling pretty comfortable with the current state of play. Annual non-tradable inflation is (and should broadly remain) where it needs to be, core measures of inflation are at or close to 2%, and the economic data pulse has recently improved. We expect the OCR will be on hold at 1% for the foreseeable future, barring global shocks.
- NZD/JPY trades near two-day high after New Zealand’s Q4 CPI rose beyond expectations.
- The pair now heads to 200-hour SMA.
- 23.6% of Fibonacci retracement can offer immediate support.
NZD/JPY takes the bids to 72.50 during early Friday morning in Asia. In doing so, the pair crosses a one-week-old falling resistance line. The buyers seem to cheer upbeat data from New Zealand while portraying the recent run-up.
Read: Breaking: New Zealand Q4 CPI: YoY 1.9% / QoQ 0.5% (NZD bullish)
A 200-hour SMA level of 72.72 is a nearby upside barrier that the bulls are currently targeting. Though, 61.8% Fibonacci retracement of the pair’s declines from January 16 to 23, at 72.80, could restrict the pair’s further advances.
In a case where the NZD/JPY prices rally beyond 72.80, 73.00 can offer an intermediate halt to the rise targeting January 16 top surrounding 73.35.
Alternatively, pair’s downside break below 23.6% Fibonacci retracement level of 72.25 can recall Thursday’s low of 71.91 ahead of challenging the monthly bottom near 71.25.
NZD/JPY hourly chart
- AUD/USD concentrates more on upbeat CBA Manufacturing PMI to keep the previous day’s gains triggered by Aussie jobs data.
- Risk negative headlines from China joins trade war fears.
- Qualitative catalysts, US Markit PMIs will offer a busy day ahead.
AUD/USD stays on the front-foot while taking rounds to 0.6845 amid the initial Asian session on Friday. The pair recently reacted to the preliminary readings of the Commonwealth Bank (CBA) PMI details for January. In doing so, Aussie buyers paid a little heed to news concerning the outbreak of China’s coronavirus.
The CBA’s January month PMIs flash mixed results as the headlines Manufacturing PMI crossed 49.0 forecasts to 49.1 whereas Services PMI lagged behind 49.5 expected to 48.9. With this, the Composite PMI lagged below 49.6 prior to 48.6. Even if all of the activity numbers released by the CBA remained in the contraction region, traders favored the Aussie buying especially after Thursday’s welcome prints of jobs report that cut odds of the Reserve Bank of Australia’s (RBA) rate cut.
On the other hand, the market’s risk tone has been weighed down by the headlines coming from China that renews fears of Severe Acute Respiratory Syndrome (SARS) virus that resulted in 774 deaths in 26 countries during the year 2002/03. Although the World Health Organization (WHO) still needs some time to consider coronavirus as an international threat, there have been 17 deaths so far due to the same. The recent update concerning the virus outbreak comes from Japan that confirms the second case of coronavirus.
Elsewhere, the US is ready to extend its trade war to the European Union (EU) and the UK. While the UK might step back due to the better relations between the US President Trump and British PM Boris Johnson, the EU might stand tall due to being the largest customer of the US.
That said, the US 10-year treasury yields extend their south-run to 1.73% by the end of Thursday’s trading whereas the S&P 500 Futures recover mildly to 3,326 by the press time.
Moving on, headlines concerning the global trade and China’s coronavirus will be the key to watch. Though, the importance of the preliminary Markit PMIs from the US can’t be ruled out.
A confluence of 200-day SMA and monthly trendline, near 0.6880 limits the pair’s short-term upside.
US President Donald Trump recently crossed wires, via Reuters, while giving details of the White House peace plan for the Middle East. The Republican leader told to release the plan before the Israeli Prime Minister Benjamin Netanyahu’s visit on January 28.
White House Middle East peace plan is a great plan.
The administration has spoken briefly to Palestinians and will speak to them again in a period of time.
Plan to release the Middle East peace plan sometime prior to Netanyahu visit on Jan 28.
Palestinians may react negatively at first to plan, but it is actually positive for them and they have a lot of incentive to do it.
Markets show a little reaction to the news that might have contributed positively to the risk-sentiment.
- EUR/USD remains under selling pressure below the 1.1063 resistance.
- The level to beat for bears is the 1.1035 support.
EUR/USD daily chart
EUR/USD four-hour chart
Additional key levels
- AUD/NZD drops to the fresh two-week low after New Zealand’s Q4 CPI beat estimates to the upside.
- The upward sloping trend lines since August 2019 and the one connecting lows marked from March 2019 will restrict further declines.
- 50-day SMA, 61.8% Fibonacci retracement will keep the near-term upside limited.
With the upbeat surprise from New Zealand’s fourth quarter (Q4) CPI pleasing New Zealand dollar buyers, AUD/NZD dropped to the fresh two-week low of 1.0337 after the data. The pair currently takes rounds to 1.0350 by the press time of early Asian morning on Friday.
As a result, the pair nears an ascending trend line stretched from August 2019, at 1.0315 now, as well as another support line connecting lows marked from March 2019, at 1.0295.
While the strength of the support lines is likely to restrict AUD/NZD declines below 1.0295, bears can target 1.0260 and 1.0220 during the declines post trend lines’ breaks.
On the upside, 1.0400 and 1.0430 can offer immediate resistance to the pair ahead of a 50-day SMA level near 1.0450.
However, pair’s upside beyond 1.0450 my find it difficult to cross 61.8% Fibonacci retracement of March-November 2019 upside, at 1.0480.
AUD/NZD daily chart
New Zealand fourth-quarter (Q4) Consumer Price Index has been released.
Consumer Price Q4 Index
NZ Q4 Consumer Price Index Non-Tradables +3.1 pct vs yr ago.
NZ Q4 Consumer Price Index +1.9 pct vs year ago (Reuters poll +1.8 pct), vs 1.5% prior.
New Zealand Q4 Consumer Price Index +0.5 pct vs pvs Q( Reuters poll +0.4 pct), vs 0.7% prior.
NZ Q4 consumer price index non-tradables +0.6 pct vs pvs Q.
Ahead of the data, analysts at ANZ bank explained that the key piece of information will be the non-tradable print.
Price analysis, before and after
Before: Price Analysis NZD/USD: CPI coming up, bulls look to 50% mean reversion, bears, 61.8% Fibo
After: NZD/USD has rallied on the better than expected data. The move has been surprisingly subdued, so far, with the QoQ below the prior reading, but the data reveals a likely positive for the bird going forward overall as markets will reduce pricing of an imminent rate cut from the Reserve Bank of New Zealand. The inflation data was higher than the Reserve Bank of New Zealand's (RBNZ) forecast a 0.2% rise in quarterly CPI. See below for the full story on NZD/USD and a 50% man reversion could be on the cards
Consumer Price Index released by the Statistics New Zealand is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of NZD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. A high reading is seen as positive (or bullish) for the NZD, while a low reading is seen as negative.
- NZD/USD nears the weekly high of 0.6625 after New Zealand’s upbeat CPI
Reserve Bank of New Zealand should be “feeling pretty comfortable” - ANZ
NZD: neutral RBNZ not a catalyst for more strength
Analysts at ANZ Bank explained that they have shifted our call on the overnight cash rate (OCR), removing the forecast cut for May, citing: better forward activity indicators, the promise of more fiscal spending and inflation sitting close to target.
- "To reflect this more patient RBNZ setting, we are revising up our NZD forecasts, although we retain our downside bias through the end of 2020.
- We think recent strength in the NZD reflects a correction in confidence, rather than a signal of sustained improvement in New Zealand’s economy.
- Volatility around the US election and renewed concerns over global growth are likely to be catalysts for weakness later in the year."
- NZD/USD extends the recovery gains as New Zealand’s Q4 CPI beat estimates.
- Market’s fear concerning China’s coronavirus, the trade war between the US and the EU and/or the US and the UK seem to cap the rally.
- Trade headlines, preliminary Markit PMIs will be in focus.
NZD/USD pops near the weekly high of 0.6625, before stepping back to 0.6620, after New Zealand’s fourth quarter (Q4) CPI data pleased kiwi buyers during the early Friday.
New Zealand’s Q4 CPI came in well near the Reserve Bank of New Zealand’s (RBNZ) expectations while flashing better than 0.4% QoQ reading to 0.5% as well as higher than the yearly forecast of 1.8% to 1.9%.
Read: Breaking: New Zealand Q4 CPI: YoY1.9% / QoQ 0.5% (NZD bullish)
Chinese outbreak of coronavirus has been hitting the headlines off-late. The humanly transmitted virus so far took 17 lives so far and has confirmed traces outside the dragon nation. Even if the World Health Organization (WHO) stepped back from terming it as an international emergency and the Chinese authorities are all over it, while also forgetting the Lunar New Year, it becomes a key threat to the global economy considering its impact on tourism and industrial production.
Also weighing on the trading sentiment is the US threats to the EU and the UK relating to levying tariffs. Given the EU constitutes a major chunk of the American exports (nearly 20%), the region’s sturdy response to the likely trade battle worries the market watchers.
Risk-tone has been heavy off-late, amid fears emanating from China, which in turn drag the US 10-year treasury yields down by four basis points (bps) to 1.73% by the end of Thursday’s trading. However, S&P 500 Futures seem to portray Wall Street’s mildly positive performance as flashing 0.17% gains to 3,325 by the press time.
Although headlines concerning trade and China’s coronavirus will be the key to watch for near-term trade direction, preliminary readings of Markit PMIs will also entertain momentum traders during the day.
While pair’s recovery after Wednesday’s Doji signals further upside towards 21-day SMA near 0.6655, a sustained downside below December 18 low of 0.6580 highlights a 200-day SMA level near 0.6510 as the key support.
The main event is NZ Q4 CPI data at 10:45am - Market is sitting at 0.4% q/q. "More broadly, the starting point inflation picture has improved and the outlook is looking more assured.
Let's take a look at possible outcomes for the price action just ahead of the event for both NZD/USD.
NZD/USD daily chart
The upside holds a tough confluence of 23.6% and 50% Fibo at 0.6680. "A print within the range of market expectations is consistent with a patient RBNZ and out updated call for a flat OCR for some time from here," analysts at ANZ Bank explained, which would bring this level into focus, so long as bulls can 'blow the doors off' through 0.6640. A miss in expectations or a disappointment within the report will open prospects for a test to the 61,8% Fibo at 0.6550 – A surprise will open up the 200-day moving average and 78.6% confluence around the 0.6500 round number guarding a full retracement back to the 0.6420s.
- AUD/JPY sellers catch a breath after ruling for five days in a row.
- Prices recently bounced off two-week low, stay below 23.6% Fibonacci retracement.
- An ascending trend line from October offers strong support.
AUD/JPY trades modestly changed to 74.93 at the start of Friday’s Asian session. The pair recently dropped to the lowest in two-weeks but 200-day SMA and 38.2% Fibonacci retracement of its October-December 2019 rise confined further declines.
With this, the quote may witness some pullback towards 75.00 and 23.6% Fibonacci retracement level near 75.40. However, a 21-day SMA level of 75.55 can cap the recovery afterward.
If AUD/JPY prices rally beyond 75.55, the monthly top near 76.30 will be on the bulls’ radar.
Meanwhile, a downside break of 74.70/60 support confluence, comprising 200-day SMA and 38.2% Fibonacci retracement, can drag the pair to a multi-month-old rising support line and 50% Fibonacci retracement, around 74.15/10 now.
In a case where the bears dominate below 74.10, odds of the pair’s revisit to the monthly low near 73.75 can’t be ruled out.
AUD/JPY daily chart
Trend: Pullback expected
Friday’s Asian session begins with the quarterly release of New Zealand CPI at 21:45 GMT. Considering the central bank's bearish bias, today’s Q4 2019 consumer price index (CPI) continues to be the key catalyst for the NZD/USD pair. Market consensus favors an increase to 1.8% from 1.5% in the YoY number versus a decline in QoQ figure to 0.4% from 0.7%.
Analysts at the Australia and New Zealand Bank (ANZ) anticipate further inaction from the Reserve Bank of New Zealand (RBNZ):
“We expect a headline print of 0.5% q/q (1.9% y/y), with a small tick up in tradable inflation. But for us, the key piece of information will be the non-tradable print. We expect a solid 0.7% q/q lift (stable at 3.2% y/y). An outturn in line with our expectation would be above the RBNZ’s forecast for a 0.6% q/q rise, with domestic pricing pressures continuing their gradual ascent and in a comfortable position for the inflation target. More broadly, the starting point inflation picture has improved and the outlook is looking more assured. A print within the range of market expectations is consistent with a patient RBNZ and out updated call for a flat OCR for some time from here.”
How could the data affect NZD/USD?
Considering the latest New Zealand GDP figures and the RBNZ’s not so bearish bias, not to forget improvement in second-tier data, any improvement in the headline inflation numbers will provide a positive impact on the Kiwi pair. Even so, the present risk-off sentiment, which supports the US dollar, might cap the NZD/USD pair’s gains unless the CPI rise dramatically that is less expected. All in all, today’s data is likely to keep the RBNZ its “wait and watch” mode unless providing any extreme figures.
On a technical side, prices need to break the range between 21 and 200-day SMA, near 0.6655 and 0.6510 respectively, in order to register major movement. While an upside break can quickly challenge the monthly high near 0.6760, November top surrounding 0.6470 can please the bears during the downside break below the 200-day SMA.
NZD/USD Price Analysis: Kiwi under bearish pressure near 2020 lows
NZD/USD remains stuck in tight range below 0.6600 ahead of NZ inflation data
About NZ CPI
Consumer Price Index released by the Statistics New Zealand is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services . The purchase power of NZD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. A high reading is seen as positive (or bullish) for the NZD, while a low reading is seen as negative.
- US stocks were pulling themselves out of the doldrums on Thursday.
- Nasdaq Composite was edging to a record close.
Benchmark closing prices
- The Nasdaq COMP, +0.20% closed higehr by 19 points, or 0.2%, to end near 9,402, beating its previous 17 Jan record finish of 9,388.94.
- The S&P 500 SPX added around 4 points, or 0.1%, to end near 3,326.
- The Dow Jones Industrial Average, or DJIA, was the laggard, ending around 26 points lower near 29,160, a loss of 0.1%.
More to come...after NZD CPI
Read: When is NZ CPI and how might it affect NZD/USD?
Analysts at ANZ bank noted that it has been risk-off prevailing overnight on concerns about coronavirus, which has claimed 17 lives, with more than 600 confirmed cases in China, and confirmed cases in a range of other countries.
"Efforts are being made to contain the virus and its devastating impact (with fears that it could be like SARS in 2003). The outbreak will have directly hit tourism, retail and related sectors in China, with risks to industrial production."
"US trade developments added to the risk-off tone, while it was a quiet day for data (with markets awaiting PMI data for the US, UK and euro area)."
"The US 10-year yield was 4.7bps lower at 1.722%. Bund yields were 4.8bps lower at 30.8 bps. The S&P 500 fell 0.3%; DAX and FTSE were down 0.9%. WTI fell 3.1% to USD55.0/bbl on virus-related demand concerns. Gold was up 0.6%."
- The uptrend remains intact within the bullish channel.
- The level to beat for bulls is the 3350 resistance.
S&P500 daily chart
Additional key levels
- West Texas Intermediate oil is trading -1% at the time of writing, correcting form shake-out lows.
- TDS analysts continue to expect follow-through selling in the complex.
The price of a barrel of oil was a lot cheaper on Thursday, as markets flipped heavily risk-off as the spread of coronavirus gripped the markets attention, popularised by the media which has little else to report on at this stage, following the recent signing of the US/Sino trade deal and an impeachment trial which markets are showing little interest in.
At the time of writing, West Texas Intermediate oil is trading at $55.49,-1%, but well off the lowest point of the day down at $54.79 having fallen from $56.25 as the late Asia high. During the US session, there was a headline doing the rounds, quoting a statement made by the World Health Organisation indicating that it is still too early to declare coronavirus as a public health emergency. More on that here.
Energy market shake-out
Analysts at TD Securities explained that "there is perhaps no clearer sign that we are in a world awash with oil than the price action across the complex in the aftermath of the de-escalation of US-Iranian tensions, and Libyan crisis, which catalyzed a massive positioning shakeout."
The analysts continue to expect follow-through selling in the complex, as trend followers further sap liquidity from the market, selling their length and adding shorts.
"Indeed, we expect a massive selling program to take place in gasoline and WTI crude, along with moderate CTA liquidations in Brent crude, as systematic trend followers attempt to capitalize on the downtrend in the energy complex."
- The Federal Reserve will hold an open meeting on Volcker Rule on 30th January.
- The Volcker rule is a federal regulation that generally prohibits banks from conducting certain investment activities.
The Fed is to hold an open meeting on Volcker Rule on 30th January. The Volcker Rule is a federal regulation that generally prohibits banks from conducting certain investment activities with their own accounts and limits their dealings with hedge funds and private equity funds, also called covered funds.
What is the Volcker Rule?
It is a rule that aims to protect bank customers by preventing banks from making certain types of speculative investments that contributed to the 2008 financial crisis.
In August of 2019, the Office of the Comptroller of the Currency voted to amend the Volcker Rule in an attempt to clarify what securities trading was and was not allowed by banks. The revised rules offer regulatory relief, however, especially for smaller banks. Banks with “significant” trading assets, were still subject to the toughest Volcker Rule requirements, but the threshold for what is considered significant will be raised to $20 billion from $10 billion. Until now, the Trump administration’s regulatory agenda has delivered more benefits for mid-size and smaller banks while there have been fewer regulatory changes for the largest banks.
In October last year, the US Federal Reserve has approved a final rule simplifying the Volcker Rule ban on proprietary trading, becoming the fifth and final regulator to sign off on the changes. The simpler version – labelled Volcker 2.0 – went live on 1 January 2020, with banks being given a year to comply.
“Under the revised rule, firms that do not have significant trading activities will have simplified and streamlined compliance requirements, while firms with significant trading activity will have more stringent compliance requirements,” the Fed wrote in a statement.
“Community banks generally are exempt from the Volcker rule by statute,” it continues. “The revisions continue to prohibit proprietary trading, while providing greater clarity and certainty for activities allowed under the law.”
US President Donald Trump has been a vocal critic of the Volcker Rule and the Dodd-Frank Act. Trump has argued that the rules are too restrictive on banking activities, and made loosening the rules a high priority since he took office. Most of the board at the Fed have been nominated by Trump, bar Lael Brainard, so it will be interesting to see what comes of such meetings over time. Wall Street certainly would prefer looser restrictions.
Here is what you need to know on Friday, January 24th:
- Continued concerns about the coronavirus spreading beyond China maintain financial markets in risk-off mode. The dollar benefited from the negative sentiment, particularly against high-yielding assets. Save-havens, on the other hand, were sharply up.
- The EUR/USD pair fell to a fresh 2020 low of 1.1035, weighed by risk aversion and the ECB Monetary Policy´s outcome. President Lagarde announced a strategic review on inflation policy, the first in over two decades, meant to determine whether the current definition of price stability is still appropriate.
- GBP/USD eased on the back of the dollar’s strength but held above 1.3100. Brexit meant to happen by month-end, focus on the future relationship between the two economies.
- Australian employment data gave the Aussie a limited boost at the beginning of the day, but risk-off and discouraging employment sub-components sent it down against the USD.
- Crude oil prices edged lower, amid fears the OPEC+ won’t extend cuts. Prices recovered some ground after the EIA report showed a decline in US stockpiles.
- Gold surged toward 1,570, ending the day with gains, although still within familiar levels.
- Cryptocurrencies continued to retreat, BTC/USD closed at 8,330.