• USD/JPY 0.6%
• AUD/JPY 0.5%
• GBP/USD -0.5%

USD/JPY

Yen Overlooks PPI In Favor Of Trade Number: It was shaping up to be a good day for the Japanese Yen against the dollar in the early hours of the Asian session after producer prices surged to their highest levels since 1990.  Business leaders have seen the prices they pay for raw materials rise for 22 consecutive months as the costs of crude oil trade off with other raw material prices to keep a consistent level of price growth.  Such news bodes well for country that eagerly awaits for a few months of uninterrupted inflation so BoJ officials can finally abandon their ultra-loose monetary policy.  This sentiment was cut short however after the trade balance report for the month of December fell short of expectations and left many worried over the fragile state of exports that the island nation is so dependant on.  Exports for the period were stagnant while the annual pace of shipments abroad rose to 6.8 percent.  Taken alone, this offered no problem, but the annual pace of imports bumped up once again to 23.3 percent.  Without the support of exports in the world's second largest economy, a rate hike could remain elusive even with sustainable inflation.  On the other hand, the current account balance only fell short of expectations while actually extending its surplus for the third month in a row. 

Technically Speaking: Bouncing off of formidable support at 113.75, dollar bulls underpinned spot strength till finding considerable barriers at the 115 figure.  Thin paring now dominates as the price action forms a textbook flag consolidation pattern.  However, lending to a comparative move lower, rather than higher, looks to be the death cross that has formed in the Stochastic.  The suggestion strengthens when realizing the range bound conditions of the previous week displaying strengthening barriers between 115*113.50.  Nonetheless, bulls are building a confluent 20 moving average and 25 percent fib level as a floor since the break of the 10 moving average.  Subsequently, momentum looks to top out at the 116.03 high on January 6th.

AUD/JPY

RBA Feels The Pressure: Speculation of a 5.75 percent overnight lending rate cost has hit the market following the release of TD Securities' inflation numbers for the December.  After dancing within the Central Bank's 2-3 percent inflationary target band since July, a measure of price growth has finally pushed beyond with a year-over-year read of 3.1 percent in December.  With the outlook of medium-term inflation not looking to ease significantly in the first half, the bank could shift its policy for the first time since March.  If indeed RBA officials raise the overnight lending rate at the Feb. 7th meeting, it would make further the AUDJPY's position as a superior carry-trade with a possible 575 basis point differential.

Aussie Dollar Tests Its Metal: Australia is a premier member of the commodity bloc for a reason.   Raw material exports comprise a hefty 60 percent of total exports from the country which further equates to 10 percent of the economy.  The composition of these necessary goods is even higher for this pair, as Japan must import most of its raw materials that it uses to produce finished goods.  Metals have been especially good for this pair.  Australia is the world's largest producer of zinc which has hit all-time highs in London trading.  It is also the second largest producer of gold whose prices are near 25-year highs amid global uncertainty with problems in the Middle East and diversification out of the US dollar as a reserve vehicle.  

Technically Speaking: Continuing off of momentum struck Friday Aussie bulls pushed the cross higher, being underpinned by the 10 simple moving average.  Acting as support still, a break of the aforementioned barrier would lead to an orderly test of the 20 moving average and subsequent 25 percent fib level from the 4-day bull wave.  Further downside capping would arise at the support floors of the 61.8 percent fib from the same 4-day bull wave.  Comparatively to the upside, the current resistance will prove to be formidable as it coincides with previous consolidation in the beginning of the month.  If broken, Aussie bulls look to once again be unstoppable till short term resistance at the 87 even figure and the December 15th spike high at 87.16.

GBP/USD

Pound Stumbles Ahead Of Inflation Report: While a European session housing price indicator ticked higher for the benefit of inflationary bulls, little response was seen in price action of the GBPUSD to this effect.   The Rightmove survey reported the average house price crawled 0.1 percent higher in December following a 0.8 percent decline in the previous month.  While housing prices are generally significant additions to inflation speculation, such a small change has left traders and economists moving on to the next piece of relevant data * which just so happens to be the Consumer Price Index for the month of December.  While prices are expected to have grown 0.4 percent on a month-over-month basis, the annual measure is expected to fall back to 2.0 percent putting the policy dictating indicator in line with the BoE's target inflation rate.  If inflation beyond the bank's target escapes the UK's economy, policy officials will likely take into scope other factors, such as employment and economic expansion, to decide their position on lending rates.  Already, the carry-trade on the long GBPUSD trade barely holds a 25 basis point lead.  With current indicators lining up for the US dollar, a rate hike is in the cards for the Jan. 31st meeting; while the Pound is leaning towards another rate cut coming sometime over the year.  If the carry trade flips in the dollar's favor, their could be a big shift in this pair's trend in which many long-term traders switch their positions to chase the interest rate differentials.

Technically Speaking: Following textbook channel running, sterling bidders look to return in full force as the spot bounces off of the lower trendline taken from the January 11th spike low.  Confirming the rise looks to be a corresponding break of the 10 simple moving average and a golden cross formation in the stochastic.  Although upside potential looks bright, a formidable resistance is consolidating in the confluence of the 20 and 50 hour simple moving averages in addition to January 12th consolidative resistance at 1.7706.  Although trying, a break above would see a momentous push towards the 7800 handle.  Any downside action would see bottom trendline breakage with a floor at 1.7640, the December 16th spike low.

Richard Lee is a Currency Strategist at FXCM.