JPY Strengthens On Record Budget, ECJ In Focus

 | Jan 14, 2015 04:12AM ET

h2 Market Brief

The World Bank cut its global growth forecast from 3.4% to 3% in 2015 despite weaker oil prices. The report leaned on growing divergence between the US and other major economies and predicted a longer period of dovish Fed before the first rate hike. The US Dollar showed mixed performance against its G10 and EM peers. The USD/RUB rallied to 66.46 as WTI crude dropped below $45 yesterday, while the oil importers as TRY and BRL were better bid with further gains anticipated.

In Japan, the Cabinet approved the record budget of 96.34 trillion yen for the fiscal year ‘15/16 with the tax revenue to reach a 24-year high. Combined to lower oil prices, there is good chance that the BoJ’s 2% target is not reached within the expected timeframe. The BoJ majority is willing to change the wording for 2% according to MNI. The Japan 10-year yields fall to the record low of 0.25%. JPY crosses were offered in Tokyo, Nikkei stocks lost 1.71%. USD/JPY legged down to 116.75, with stronger bearish momentum. The pair is now fully in the Ichimoku cloud cover (113.54/118.71). Resistance is seen at cloud top. Key support is seen at 115.50/57 (Fibonacci 61.8% on Oct-Dec rally / December dip). EUR/JPY hits the Fibonacci 23.6% on Oct-Dec rally (137.83). The ECJ decision today is important to predict whether there is room for extension of weakness or correction is underway. Resistance is placed at 140.10/30 (area including 200-dma &Fib 38.2%).

The EUR-complex focuses on the non-binding decision of European Court of Justice today on a list of questions raised by the German Constitutional Court. The ECJ provides opinion on the legality of the OMT program, the ancestor of the QE that the ECB is perhaps about to introduce. An adverse recommendation may complicate the next steps in favor of public debt purchases, as it may undesirably step into the borders of financing the governments which would be against the EU law. The final decision is due in six months. This being said, we see little probability in ECB condemnation to reverse speculations on the QE. The sentiment in EUR/USD remains comfortably negative.