Yen Rebounds on Inflation, Dollar Remains Pressured

The Japanese yen was pressured before the Tokyo fix but rebounds strongly across the board after that, following upside surprise in Japanese inflation data. A bunch of data was released from Japan overnight but the most important was definitely the Nov CPI data which surged to 0.6% yoy, much stronger than expectation of 0.3%. Core CPI also surged to 0.4% yoy, fastest pace in almost 10 years. Though the rise in inflation was mainly due to record energy prices. The so called core-core measure, the CPI ex food and energy, remained negative and fell -0.1% yoy in Nov. Nevertheless, the data still suggested an apparent end to the deflationary abyss which lasted for more than a decade. Other data from Japan saw unemployment rate dropping back to 3.8% in Nov, household spending dropping -0.6% yoy, industrial production rose 2.9% yoy, retail sales rose 1.6% yoy.

Elsewhere, dollar remains generally weak across the board. Markets will turn to today's Chicago PMI and Nov new home sales fro US. Sterling remains generally weak today and today's nationwide house price, which is expected to slow further to 5.3% yoy in Dec, may continue to limit Sterling's rebound. Swissy was lifted additionally safe haven buying on uncertainties after assassination of Pakistani opposition leader Benazir Bhutto and geopolitical risks. KOF leading indicator is expected to dip from 2.02 to 1.98 in Dec.
EUR/USD

Daily Pivots: (S1) 1.4516; (P) 1.4577; (R1) 1.4686; More

EUR/USD turns sideway after reaching as high as 1.4638 and remains firm. Intraday bias remains on the upside as long as 1.4559 minor support holds and further rise is expected to see towards 1.4750 resistance. As discussed before, sustained break of short term falling trend line resistance (now at 1.4592) will suggest that corrective fall from 1.4966 has already completed after just failing 100% projection of 1.4966 to 1.4524 from 1.4750 at 1.4308. Break of 1.4750 resistance will confirm this case and bring retest of 1.5 psychological resistance. On the downside, below 1.4559 will indicate that an intraday top is formed and turn intraday outlook neutral first.

In the bigger picture, medium term up trend from 1.1639 has made a top at 1.4966 after failing 61.8% projection of 0.8223 to 1.3668 from 1.1639 at 1.5004 which overlaps with 1.5 psychological resistance. However, with 1.3851 resistance turned support remains intact, subsequent fall from 1.4966 is treated as correction to rise from 1.3360 only. Break of 1.4750 resistance will confirm that such correction has completed and bring retest of 1.5 cluster resistance. Otherwise, another fall could still be seen to dip into 1.4014/4281 support zone before completing this correction.