Daily Report: Euro Rally And Yen Decline Continue, NFP In Focus

Markets are back to business as the euro rallies and the yen decline continues. EUR/USD extended its recent rise and broke 1.36 level while USD/JPY also jumped above 92 level. The break of a near term channel resistance in USD/JPY showed that it might be accelerating again. The two main trends send EUR/JPY through a key 123.31 resistance level which indicates further medium term strength ahead. Also, Sterling was taken up by Euro as GBP/JPY also broke through 145 psychological level while GBP/USD also extended its recovery from 1.5673. The Australian dollar, was unpinned by weak China data as well as PPI and dipped against dollar while EUR/AUD broke 1.31 level.

In Japan, it's reported that prime minister Abe is close to completing a short list of candidates for the next BoJ governor. Economics Minister Amari said today that there is no need to revise BoJ law about its independence. But it's widely believed that Abe will choose a policy dove who has the same philosophy as him and would help him implement his Abenomics through aggressive easing. Data from Japan saw the unemployment rate rise back to 4.2% in December versus expectation of 4.1%. House spending dropped -0.7% yoy in December versus expectation of -0.2% yoy.

China's manufacturing PMI unexpectedly dropped to 50.4 in January, down from 50.6 in December and was lower than the expectation of 51.0. Though, the HSBC manufacturing PMI was revised up to a two year high of 52.3, up from preliminary reading of 51.9 and prior month's 51.5. The data showed that China's manufacturing activity is back in expansion mode and would stay there. However, strength of the expansion could be modest only. Australian PPI rose 0.2% qoq in Q4 comparing to expectation of 0.3% qoq. Aussie was weighed down by the these data.

Looking ahead, UK PMI manufacturing will be a main focus in European session and is expected to drop slightly to 51 in January. Sterling has so far been the weakest European major but EUR/GBP's rally is taking a breath for the moment. Any downside disappointment in the PMI data today would likely trigger another rally in EUR/GBP. Also to be released in European session are Swiss SVME PMI, Eurozone PMI manufacturing final, CPI and unemployment rate.

Heavy weight data will be released from US today. Non-farm payroll is expected to rise 155k in January while unemployment rate is expected to be steady at 7.8%. ISM manufacturing index is expected to drop to 50.5 in January. U of Michigan confidence and construction spending would be released. While the data might trigger some volatility in dollar pairs, they should have no impact to the underlying trend in Euro and yen. That is, we'd suggest to stay long in EUR/JPY, as well as USD/JPY, and forget about other pairs for today.