Macroeconomic overview
Japan’s core consumer price index rose 0.1% in January from a year earlier, marking the first year-on-year rise since December 2015.
The reading for the core CPI, which includes oil products but excludes volatile prices of fresh food, was above the median market forecast for flat growth.
A separate, new index that excludes the effect of energy and fresh food prices, but includes processed food costs, rose 0.2% in January from a year earlier. The ministry says the index, released for the first time on Friday, is useful in tracking price trends because it strips away one-off factors. It will continue to release on its website the “core-core” CPI, which excludes energy and food prices.
Japan’s jobless rate fell to 3.0% in January and the availability of jobs was unchanged from the previous month.
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Japanese household spending fell 1.2% in January from a year earlier in price-adjusted real terms, government data showed on Friday, compared with the median estimate for a 0.4% decline.
Japan’s services PMI slipped to a seasonally adjusted 51.3 in February from 51.9 in January. February’s index for new business was 53.0, barely changed from January’s 53.1. Last month was the seventh straight with growth in new orders. The index for outstanding business slipped to 50.2 in February from 51.3 the previous month. Employment in the sector, which declined most of 2016’s second half, rose at the fastest rate since May 2013, according to the survey. January also brought more service jobs, but the increase was at a slower pace.
The USD slipped against the JPY on Friday but remained on track for a solid weekly gain on growing expectations the U.S. Federal Reserve will raise interest rates at its mid-March meeting.
Comments this week from Fed policymakers – William Dudley, Lael Brainard and John Williams – suggest that Fed hike in two weeks is the most likely scenario now. Fed funds futures on Thursday implied traders saw a 79.7% probability of a Fed rate hike at its March 14-15 policy meeting, up from 66.4% on Wednesday. We think this probability will rise after speeches by Fed Chair Janet Yellen as well as Vice Chair Stanley Fischer today.
Technical analysis
The USD/JPY broke above 76.4% fibo of February drop at 114.18 on rising expectations for Fed hike in March. We think there is scope for full retracement of February move in the near term (114.95). The next resistance level would be January 27 high at 115.37.
Trading strategy
We stay sideways on the USD/JPY, because we do not want to increase risk on our portfolio with another USD-bullish position after getting short on the EUR/USD and getting long on the USD/CHF. This-year price action suggests that the USD/JPY has been relatively reluctant to USD strength. That is why we think the USD is likely to gain more against other major pairs.
USD/CAD: Investors shrugged off Canadian GDP data
Macroeconomic overview
The Canadian dollar weakened on Thursday to a nearly two-month low against the USD, shrugging off data that showed solid domestic economic growth as oil prices fell and the greenback climbed against a basket of major currencies. Gains for the U.S. dollar came on increasing signs from Federal Reserve officials that the U.S. central bank is seriously considering raising interest rates this month.
Canada’s economy grew at a faster pace than anticipated in the final quarter of 2016, lifted by consumer spending and a drop in imports, but the strong performance is not expected to prod the central bank to change its cautious stance on interest rates.
GDP grew at an annualized 2.6% rate in the fourth quarter, Statistics Canada said on Thursday, beating market forecasts for 2% growth.
While that marked a slowdown from an upwardly revised 3.8% rate of expansion in the third quarter, the economy grew by 0.3% in December, boding well for the transition into 2017.
Other aspects of Canada’s economic health were not as strong as the overall growth figure suggested, with an increase in net trade contributing to growth. Although exports rose just 1.3% on an annualized basis, imports slumped, giving back temporary third-quarter gains due to a shipment for an East Coast oil project.
The pullback also weighed on business investment. However, consumers continued to show resiliency as household consumption climbed 2.6%.
Technical analysis
The USD/CAD has risen steeply and a pullback would be a likely scenario for the next week. However, hawkish comments from Janet Yellen today may push the rate towards December 2016 high at 1.3598.
Trading strategy
Our long-term position is under pressure after the USD/CAD broke above January high of 1.3387. We have placed a short-term sell order at 1.3595 as we do not expect the USD/CAD rally to be continued above that level given tailwind for the loonie coming from fundamental factors.
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By GrowthAces.com – Daily Forex Trading Strategies
