Daily Report: Sentiments Stabilized as Japan Nuclear Crisis Eased

Sentiments stabilized further as fear on Japan nuclear crisis eased and on new cease-fire agreement in Libya. Asian equities are broadly higher with Japanese Nikkei rebounding another 2.72% to close above 9200 level. Crude oil breaches 103 today while gold is pressing 1430. Dollar remains soft in general and edges lower against Aussie and Loonie. The greenback is expected to extend recent decline against Euro on April hike expectations. Meanwhile, yen consolidates in tight range with yen crosses still limited below key near term resistance. Outlook of the yen will continue to depend on whether these resistance levels would be taken out firmly.

 

In Japan, with government's efforts to stabilize the Fukushima nuclear plant, 2 (unit 5 and 6) of the 6 reactors is now under control and an electric cable has been connected to the station. News reported that radiation measured in Tokyo declined marginally to 0.0480 microgray per hour yesterday. In Kitaibaraki City, radiation was at 0.783, down from readings above 1 microgray last Friday. Putting it into context, an x-ray typically has 50 micrograys of radiation. The US Energy Secretary Steven Chu said the White House also believes that the worst of the crisis is over.

 

The World Bank estimates that it will take five years and up to USD 235b for rebuilding Japan after "unprecedented" damage to housing and infrastructure caused by the historical earthquake and tsunami on March 11. World Bank expects real GDP to be negatively affected through mid-2011 and have a "modest short-term impact on the region", disrupting trade and investment flows.

 

As noted before, while the reversal in Japanese yen last week was sharp and deep, the yen is still contained above key near term support levels against other major currencies. Those include 83.96 resistance in USD/JPY, 115.96 resistance in EUR/JPY, 135.48 resistance in GBP/JPY, 84.46 resistance in AUD/JPY and 85.58 resistance in CAD/JPY. These levels will be closely watched and as long as they hold, we'd still stay bearish in yen crosses in the medium term even though some more consolidations are expected first.

 

This morning a Libyan military spokesman has announced a new ceasefire. At stated, 'the armed forces have issued its command to all military units in Libya to safeguard the immediate cease-fire everywhere in Libya from 9 pm' and all Libyans 'could sit down as one family to discuss the affairs of our homeland and the future of Libya in a democratic and peaceful way'. The situation in Libya remains ambiguous and we believe no quick resolution can be dealt with the problem. Thus, oil and gold prices should remain supported and dollar, other than hand, would be pressured.

 

BoE Chief Economist Dale said that the UK recovery "looks set to continue". Also, Dale noted that bank funding continues in UK continued to improve, making a "solid start to 2011, having broadly met their funding requirements in 2010". The bank also said in its quarterly bulletin that "markets expected the pace of policy tightening, both in the UK and abroad, to be faster than at the time of the previous bulletin."

 

Daily Pivots: (S1) 78.93; (P) 80.45; (R1) 82.09; More.

Another rise remains mildly in favor in USD/JPY to extend the rebound from 76.40 but focus remains on 84.49 key resistance. As long as this resistance holds, there is no indication of reversal yet. Hence, while some consolidations would be seen above 76.40 first, we'd continue to favor a downside breakout eventually to extend the long term down trend. Below 79.74 minor support will turn bias back to the downside for 76.40 first.

 

In the bigger picture, the strong break of 79.75 (1995 low) confirms that multi-decade down trend in USD/JPY has resumed. In any case, we'll stay bearish as long as 84.49 key resistance holds. Current down trend would possibly extend to 61.8% projection of 94.97 to 80.29 from 83.96 at 74.88 next. However, decisive break of 84.49 will argue that an important medium term bottom is formed. Focus will then turn to whether USD/JPY could sustain above 55 weeks EMA (now at 85.45). In that case, stronger rise could be seen towards 94.97 resistance next.