Yen Selloff Continues, Aussie Weighed Down By Retail Sales

Yen remains broadly weak today and recent decline continues. Another round of selling was triggered yesterday as BoJ governor Shirakawa announced to step down three weeks earlier than scheduled on March 19, paving the way for accelerated easing from the central bank. BoJ board member Sato said today that achieving the 2% inflation target would be difficult "merely by enhancing ongoing policy initiatives." He also noted that "BOJ aims to steadily increase the amount outstanding of the Asset Purchase Program by adjusting the program in a flexible manner". And, "stronger indirect influence on foreign exchange rates will be achieved from a further decline in interest rate". But he also said that "pursuing a high price stability target of 2% solely through the exchange rate channel is not a balanced option." USD/JPY high a 33 month high today so far and remains first. Meanwhile, bias in EUR/JPY and GBP/JPY remained on the upside and further rally is expected for the rest of the week.

After a brief retreat, Euro recovered strongly against dollar and other major currencies overnight as worries on Spain and Italy political uncertainties faded. Nonetheless, the EUR/USD, EUR/GBP, EUR/AUD, EUR/CAD are all trapped in range below this week's high so far. Traders are holding their bets ahead of ECB meeting tomorrow. ECB is expected to leave the main refi rate unchanged while no further quantitative easing programs would be announced. Yesterday, French President Francois Hollande expressed concerns over the strength of the single currency and called for a currency policy. He stated, "the Eurozone must, through its heads of state and government, decide on a medium-term exchange rate. His idea gained support from Slovak Prime Minister Robert Fico who said that government would support such policy and "is ready to support any proposals which will help economic growth and Europe itself". We expect the ECB president Draghi to face questions about the issue at the press conference. We also anticipate questions about scandal at Monte dei Paschi and Draghi's responsibilities when he was the head of Italy's central bank from 2006 to 2011.

Aussie continues to be the weakest commodity currencies among Canadian and Kiwi. And it's further weighed down by disappointing retail sales data today. Retail sales unexpectedly dropped for a third month in December, by -0.2% mom while November's figure was also revised down to -0.2%. RBA kept rates unchanged at 3.00% yesterday and said that "the inflation outlook, as assessed at present, would afford scope to ease policy further, should that be necessary to support demand". The central banks is till opening the door for more easing and Aussie's outlook would very much depend on incoming data in the Q1. And, that would include tomorrow's January job data which is expected to show 6k job growth with unemployment rate rising to 5.5%. Also, note that New Zealand will release job data in tomorrow's Asian session.

AUD/NZD's down trend seems to be accelerating after taking out 1.2317 key long term support last month. We'd expect medium term downside momentum to remain strong and the current fall should be targeting 61.8% of 1.0628 (2008 low) to 1.3793 (2011 high) at 1.1837 and below. And a break above 1.2453 resistance is needed to be the first sign of stabilization. Or outlook will stay bearish.
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