USD/JPY touched 12 year high

There were no important eco data in Europe or in the US yesterday. Even so, the dollar uptrend remained firmly in place. EUR/USD dropped to a new short-term correction low. USD/JPY trended higher and temporary regained the 124 barrier. Late in the European session, the markets were spooked by comments from a Greek official that Greece and its creditors were close to an agreement. The euro reversed most of the intraday losses upon these headlines Even so, the gains were moderate. EUR/USD struggled to remain north of 1.09.

Eco calendar again rather thin. Greece a wildcard

This morning, Asian equities show again a mixed picture. Japanese equities still profit from the decline of the yen. USD/JPY cleared the 2007 top, but is currently back below the 124 handle. Chinese equities corrected after the recent strong gains. The annual report of the PBOC gave some mixed signals on growth and on policy stimulation. The yuan is still unmoved, holding near the USD/CNY 6.20 area. The Aussie dollar dropped below the 0.77 mark. Q1 capital expenditure was much weaker than expected at -4.4%, raising speculation that the RBA could cut rates still further. EUR/USD is still hovering north of the 1.09 area even as there are indications that not all parties involved in the Greek debt negotiations share yesterday’s optimism on a deal.

Later today, the eco calendar contains the confidence data from the EC. In the US the weekly jobless claims and the pending home sales will be published. The claims are expected at a low level. A decent figure might reinforce the recent positive sentiment on the dollar. Of course, there is still Greece and the negotiations with its creditors. This morning, it looks that yesterday’s Greek optimism was a bit premature as the IMF and other creditors still see important hurdles. Even so, EUR/USD maintains yesterday’s rebound quite well. Unless there comes real positive news (preferably from non-Greek sources), there is little reason for further euro gains. Or is the USD rally ripe for a short-term breather? (cf USD/JPY is struggling to hold north of key technical levels).

Recently, the dollar was strong on rate hike hopes and the euro was in the defensive as political uncertainty came again to the forefront. We don’t see this global context to change short-term. We don’t row against the USD positive tide, we wouldn’t be surprised if the dollar rally takes a breather, until there is more confirmation from strong US eco data. USD/JPY remains well bid, too. The pair jumped temporary above the 2007 top reaching the highest level in 12 years. Japanese policy makers warned already that high volatility was undesirable. At the same time, the yen might rebound short-term if sentiment on risk deteriorates. We don’t row against the USD positive trend, but short term players can consider defending yen shorts against a setback.

Longer term, we maintain a cautiously positive bias on the dollar. Since last week, the dollar developed a bottoming out process. Interest rate differentials are again moving slightly in favour of the dollar and the US eco data were moderately constructive. At the same time, the decline of the bund, which supported the euro early this month has stalled. The topside of the euro should be better protected. We assume that EUR/USD 1.1534 (early February top) will be difficult to break. A sustained further rebound of the dollar needs confirmation that the US Q1 dip was temporary. This might take time.

Sterling rebound shifting into a lower gear?

Yesterday, there were no important eco data in the UK. The announcement of the policy intentions of the new Government, including on the EU referendum had little impact on sterling trading.. Ongoing USD strength pushed cable to an intraday low in the 1.53 area. Euro weakness pushed EUR/GBP to a new short-term correction low, too (0.7055 area). However, the late session rebound due to positive headlines on Greece finally blocked the downside. EUR/GBP closed the session at 0.7101, from 0.7068 previuously.

UK Q1 GDP revision in focus

Today, the UK loans for house purchases and the details of the UK Q1 GDP will be published. A slight upward revision for the BBP is expected. We keep an eye at domestic demand as factor for sterling trading. However, after the recent sterling rally, a substantial positive surprise might be needed to trigger further sustained sterling gains.

Sterling remained in good shape last week even as expectations for a BoE rate hike are pushed back to 2016. The short-term momentum was sterling constructive, but we have the impression that enough good news is discounted. Euro weakness might still keep EUR/GBP under moderate pressure. USD strength will probably dominate cable.