USD/JPY: Short In Good Shape Today

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EUR/USD: Eyes On US ADP And Non-Manufacturing ISM

• Kansas City Fed Bank President Esther George, who has a vote this year on the US central bank's rate-setting committee, said the Fed should push ahead with interest rate hikes because of the strong fundamentals of the economy. George said her view could change if there were a "substantial shift" in the outlook for the US economy and that she was paying attention to financial market volatility as well as the possibility that job losses in the US energy sector could act as a drag on the overall economy. George added that she thought the Fed got a "late start" when it raised rates by a quarter percentage point in December after leaving them near zero for seven years. She did not say how many increases she thinks are warranted this year but said she backed a "gradual" path of hikes.

• Retail trade in the Eurozone increased 1.4% yoy, slightly less than the forecast 1.5%. Eurostat revised upwards both monthly and yearly estimates for the month of November. Month-on-month Eurozone sales have been flat in November, contrary to previous estimates of a 0.3% drop. Year-on-year sales recorded in November a 1.6% rise, more than the previously estimated 1.4%.

• Eurozone final Composite PMI, seen as a good guide to growth, came in at 53.6 in January, just pipping an earlier flash estimate of 53.5 but considerably below December's 54.3. Growth of activity, order books and employment all lost momentum, but perhaps most worrying of all from ECB policymakers' perspective is the intensification of deflationary pressures. Today’s PMI survey raises the prospect of further stimulus.

• The EUR/USD broke above the 7-day exponential moving average and we raised our bid to 1.0890. Breaking above the daily cloud top at 1.0955 will open the way to stronger gains.

• Investors are focused on today’s US ADP private sector employment data (13:15 GMT) and Non-manufacturing ISM (15:00 GMT). We anticipate slower private sector jobs growth, with risks skewed to the downside for the payrolls data too.

USD/JPY: Short In Good Shape Today

• Bank of Japan Governor Haruhiko Kuroda said the central bank has ample room to expand stimulus further and is prepared to cut interest rates deeper into negative territory, signalling a readiness to act again to hit the inflation target. The BOJ chief said although Japan's economy was recovering moderately, it was taking longer than expected to achieve his 2% inflation target due to slumping energy costs.

• Kuroda said it is natural for interest rates to rise as the economy approaches the government's JPY 600 trillion target for GDP. Kuroda also said rates will rise once consumer prices approach the BOJ's 2% inflation target.

• The JPY gained for most of the Asian session as oil prices fell, hitting sentiment in stock markets and bringing investors' focus back to global growth woes. Our short USD/JPY position is in good shape today. We have locked in profit at 119.90. The nearest strong support level is 119.16 (76.4% fibo of 118.38-121.70).

NZD/USD: Kiwi Boosted By Strong Jobs Report

• New Zealand unemployment rate fell to 5.3% in the three months to December of 2015, from 6.0% in the previous period, well below market forecast of 6.1%. It was the lowest rate since March of 2009, as the number of unemployed went down by 10.9% qoq while employment increased by 0.9% qoq and 1.3% yoy. Annual wage inflation, as measured by the labour cost index, eased to 1.5%, the lowest since the year to the March 2010 quarter. This compares with low annual consumer price inflation of 0.1%.

• Reserve Bank of New Zealand Governor Graeme Wheeler said that the bank will continue to draw on the flexible nature of its policy targets agreement when determining monetary policy. He said the bank would avoid a “mechanistic approach” as that can lead to an "inappropriate fixation on headline inflation”. He underscored that inflation is currently low because of negative inflation in the tradables sector and the decline in oil prices in particular. Wheeler said that oil prices are a factor that can legitimately cause inflation to be outside the target band, and therefore the bank can look through them when assessing monetary policy. He added: “It would be inappropriate to attempt to offset the low oil price effect through the official cash rate.” He also said, however, monetary policy will continue to be accommodative and recognized that most of the risks facing New Zealand's economy are on the downside.

• Fonterra's GDT Price Index dipped 7.4%, with an average selling price of USD 2,276 per tonne, in the platform established by New Zealand's Fonterra Co-operative Group, the world's biggest dairy exporter. Global dairy prices have dropped sharply because of slowing economic growth in China and global oversupply of milk products. Weak dairy prices have put significant pressure on New Zealand farmers. The central bank now estimates around 80% of dairy farmers will have negative cash flow in the current season, posing a risk to the economy.

• The NZD appreciated significantly after a strong jobs report. This is good news for our long NZD/USD position. We have locked in profit on this position at 0.6500. On the other hand, we made a small loss on our AUD/NZD positions.

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