MNI China Daily Summary: Thursday, December 12

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Greenback Recovery Prompts Fresh YTD Highs For USD Index

FOREX
  • Despite some early greenback weakness on Tuesday, bear steepening across the Treasury curve prompted a firm dollar recovery, with the DXY extending year-to-date highs and printing the best levels since mid-December. The Japanese yen made a notable round trip following the latest Bank of Japan decision, however, the most notable laggard in G10 has been the Euro as Thursday’s ECB decision approaches.
  • Clearance of Jan 17's 103.692 in the DXY tripped the late leg lower for major currency peers, narrowing the gap with the next key upside levels at December's 104.263 and the 100-dma of 104.436.
  • USDJPY’s daily range spanned 171 pips in total following a broadly uneventful BOJ release overnight. A small USDJPY pop on the release was aggressively faded as Governor Ueda made some slightly hawkish leaning remarks and short-term positioning aided the sell-off down to 146.99 lows. However, momentum waned and as treasury yields ticked higher throughout the session, USDJPY followed suit, eventually reaching a new intra-day high of 148.70.
  • Late slippage for EURUSD retains the bear-mode condition. Last week’s move lower resulted in the break of a trendline drawn from the Nov 1 low, signalling scope for a continuation of the corrective cycle. Price action since Jan 17 appears to be a flag formation - a bearish continuation signal. Further weakness would target 1.0793, a Fibonacci retracement.
  • The likes of AUD, NZD and CAD have shown relative outperformance alongside late strength in Chinese equities, helped by reports of China eyeing a $278bln rescue package for stocks, on top of news that Alibaba's Jack Ma was a buyer of his company's shares across Q4.
  • Wednesday’s calendar kicks off with New Zealand CPI, before a host of European Flash PMIs preview the latest strength of regional economies. The Bank of Canada rate decision will also highlight.
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