Deflation Sinks EUR, GBP Capped Before BOE Decision -- Asia Daily Forex Outlook

        The following are projected trading ranges and outlooks for nine major currency pairs today:
        (Ranges are calculated using recent high and lows and technical analysis - Fibonacci levels, trendlines and moving averages.)
        USD/JPY--to consolidate with buoyant tone. Underpinned by yen-funded carry trades amid improved investor risk sentiment (VIX fear gauge eased 8.57% to 19.31; S&P 500 closed up 1.16% at 2,025.9 overnight) as data showing the eurozone fell into deflation for first time in more than five years bolstered expectations for the European Central Bank to engage in full-blown quantitative easing as early as Jan. 22, while balanced minutes of the Federal Reserve's December policy meeting suggest the U.S. central bank will be in no rush to raise interest rates before the middle of this year. USD/JPY also supported by demand from Japan importers; Bank of Japan's large-scale monetary easing policy; positive dollar sentiment (ICE spot dollar index hit nine-year high 92.265 Wednesday, last at 92.02 versus 91.73 early Wednesday) on narrower-than-expected U.S. November trade deficit of $39 billion (versus forecast $42 billion), while ADP report showing 241,000 increase in U.S. December private sector jobs--although below forecast +250,000--bolstered hopes that Friday's U.S. non-farm payrolls data would be robust. But USD/JPY gains tempered by Japan exporter sales; lower U.S. two-year Treasury yields (last at 0.613% versus 0.633% late Tuesday) after release of FOMC minutes. Data focus: 1330 GMT U.S. jobless claims in week ended Jan. 3 forecast 290,000), 1700 GMT Fed's Rosengren speech, 2000 GMT U.S. November consumer credit (forecast +$15.0 billion). Daily chart still negative-biased as MACD & slow stochastic indicators in bearish mode; five-day moving average below 15-day moving average and declining. Resistance at 119.65 (Wednesday's high); breach would expose upside to 120.68 (Monday's high), then 120.74-120.82 band (Friday's high-Dec. 23 high), 121.00 (Dec. 9 high) and 121.86 (seven-year high hit Dec. 8). Support at 118.82 (hourly chart), then at 118.67 (hourly chart) and 118.45 (Wednesday's low); breach would expose downside to 118.05 (Tuesday's low), then 117.20 (55-day moving average) and 116.30 (Dec. 17 low).
        EUR/USD--to consolidate with bearish bias after hitting nine-year low 1.1802 on EBS Wednesday. Undermined by lower-than-expected eurozone December flash CPI of -0.2% on-year (versus forecast -0.1%), bolstering expectations for the ECB to engage in full-blown quantitative easing as early as the next ECB monetary policy meeting on Jan. 22. EUR/USD also weighed by positive dollar sentiment; fears of Greece exit from the eurozone were the anti-austerity left-wing Syriza party win snap elections on Jan. 25 and renege on the country's reform program; euro sales on soft EUR/GBP cross. But EUR sentiment soothed by larger-than-expected 27,000 decrease in Germany's unemployed people in December (versus forecast -7,000). EUR/USD losses also tempered by euro demand on buoyant EUR/JPY cross amid improved risk sentiment. Data focus: 0700 GMT Germany November manufacturing orders (forecast -0.8%); 1000 GMT eurozone November PPI (forecast -1.4% on-year), eurozone November retail sales (forecast +0.3% on-month), eurozone December economic sentiment indicator (forecast 101.3 vs Nov's 100.8). Daily chart negative-biased as MACD bearish; five- and 15-day moving averages declining; stochastics stays suppressed at oversold levels. Support at 1.1802 (Wednesday's low); breach would expose downside to 1.1638 (Nov. 17, 2005 swing low), then 1.1375 (Nov. 7, 2003 reaction low). Resistance at 1.1897 (Wednesday's high); breach would temper negative near-term view, exposing upside to 1.1969 (Tuesday's high), then 1.2006 (Monday's high), 1.2109 (Friday's high), 1.2170 (Dec. 31 high) and 1.2188 (Dec. 30 high).
        AUD/USD--to consolidate in higher range after hitting five-and-a-half year low 0.8031 Wednesday. AUD/USD supported by Aussie demand on buoyant AUD/JPY cross amid improved risk appetite. But AUD/USD gains tempered by positive dollar sentiment; weak commodity prices (CRB spot index hit five-and-a-half year low 223.86 Wednesday); Aussie sales on soft AUD/NZD cross. Data focus: 0030 GMT Australia November building approvals, 0530 GMT Australia December official reserve assets. Daily chart mixed as five- and 15-day moving averages declining, but stochastics turning bullish near oversold levels; tweezer bottoms candlestick pattern completed Wednesday. Resistance at 0.8090 (Wednesday's high); breach would expose upside to 0.8157 (Tuesday's high), then 0.8184 (Friday's high), 0.8215 (Dec. 31 high), 0.8235 (Dec. 17 high) and 0.8274 (Dec. 15 high). Support at 0.8031 (Wednesday's low); breach would reinstate negative near-term view, targeting psychological 0.8000 line, then 0.7700 (July 13, 2009 reaction low).
        NZD/USD--to trade in higher range. Supported by firmer dairy prices; Kiwi demand on buoyant NZD/JPY cross amid reduced risk aversion; Kiwi demand on soft AUD/NZD cross; NZD-USD interest differential. But NZD/USD gains tempered by positive dollar sentiment. Daily chart mixed as MACD and stochastic indicators in bullish mode; but five- and 15-day moving averages meandering sideways, inside-day-range pattern completed Wednesday. Resistance at 0.7793 (Wednesday's high), then at 0.7809 (Tuesday's high); breach would expose upside to 0.7853 (Dec. 31 high), then 0.7870 (Dec. 11 high), 0.7889 (Dec. 2 high) and 0.7910 (Dec. 1 high). Support at 0.7711 (Wednesday's low); breach would tilt near-term outlook negative, targeting 0.7679 (Tuesday's low), then 0.7616-0.7606 band (Monday's low-Dec. 9 low), 0.7451 (June 1, 2012, swing low) and 0.7367 (Nov. 25, 2011, swing low).
        GBP/USD--to consolidate with bearish bias after hitting one-and-a-half year low 1.5053 Wednesday as markets await 1200 GMT Bank of England interest rate decision: BOE is expected to leave interest rates unchanged at 0.5%. GBP/USD soft as market participants pushed back expectations for the timing of BOE rate increases after recent weak U.K. data. GBP/USD also undermined by positive dollar sentiment. But GBP/USD losses tempered by sterling demand on buoyant GBP/JPY cross amid diminished risk aversion; sterling demand on soft EUR/GBP cross. Daily chart negative-biased as MACD & slow stochastic indicators bearish; five- and 15-day moving averages declining. Support at 1.5053 (Wednesday's low); breach would target 1.5026 (July 15, 2013 low), then psychological 1.5000 line and 1.4812 (July 9, 2013 swing low). Resistance at 1.5155 (Wednesday's high); breach would temper negative near-term view, exposing upside to 1.5273 (Tuesday's high), then 1.5336 (Monday's high), 1.5584 (Friday's high), 1.5619 (Dec. 31 high) and 1.5665 (Dec. 22 high).
        USD/CHF--to consolidate with bullish bias after hitting four-year high 1.0176 Wednesday. Underpinned by positive dollar sentiment; contagion from weak euro on the Swiss franc; ultra-loose Swiss National Bank's monetary policy. But USD/CHF gains tempered by franc demand on buoyant CHF/JPY cross. Daily chart positive-biased as MACD bullish; stochastics stays elevated at overbought levels; five- and 15-day moving averages advancing. Resistance at 1.0176 (Wednesday's high); breach would expose upside to 1.0277 (Sept. 10, 2010 high), then 1.0626 (Aug. 11, 2010 high). Support at 1.0092 (Wednesday's low); breach would temper positive near-term view, targeting 1.0038 (Tuesday's low), then 1.0008 (Monday's low), 0.9932 (Friday's low), 0.9877 (Dec. 31 low) and 0.9864 (Dec. 30 low).
        USD/CAD--to consolidate in lower range after hitting five-and-a-half year high 1.1873 Wednesday. Undermined by loonie demand on buoyant CAD/JPY cross amid improved risk tolerance; rebounding oil prices (Nymex crude hit five-and-a-half year low $46.83/bbl Wednesday but settled up 72 cents at $48.65/bbl). But CAD sentiment dented by wider-than-expected Canada November trade deficit of C$644 million (versus forecast C$200 million deficit); lower Canada December seasonally adjusted Ivey PMI of 55.4 versus November's 56.9. USD/CAD losses also tempered by positive dollar sentiment. Data focus: 1330 GMT Canada November new-housing price index. Daily chart still positive-biased as MACD & stochastics bullish; five- and 15-day moving averages advancing. Support at 1.1728 (Tuesday's low); breach would expose downside to 1.1596 (Friday's low), then 1.1563-1.1557 band (Dec. 31 low-Dec. 17 low), 1.1545 (Dec. 15 low), 1.1512 (Dec. 12 low) and 1.1449 (Dec. 11 low). Resistance at 1.1873 (Wednesday's high); breach would reinstate positive near-term view, exposing upside to 1.1951 (May 1, 2009 high), then psychological 1.2000 line and 1.2200 (76.4% Fibonacci retracement of decline from March 9, 2009 high of 1.3063 to July 26, 2011 low of 0.9403).
        (MORE TO FOLLOW) Dow Jones Newswires

        January 07, 2015 18:40 ET (23:40 GMT)

        EUR/JPY--to consolidate with risks skewed higher after hitting two-month low 140.58 Wednesday. EUR/JPY supported by reduced safe appeal of yen amid improved investor risk appetite; demand from Japan importers. But EUR/JPY gains tempered by weak EUR sentiment; Japan exporter sales. Daily chart still negative-biased as MACD indicator bearish, slow stochastic measure stays suppressed at oversold levels; five- and 15-day moving averages declining. Resistance at 141.67 (Wednesday's high); breach would expose upside to 142.71 (Tuesday's high), then 144.43 (Monday's high), 145.31 (Friday's high), 145.57 (Dec. 31 high) and 146.73 (Dec. 30 high). Support at 140.58 (Wednesday's low); breach would reinstate negative near-term view, targeting 140.28 (200-day moving average), then psychological 140.00 line (near 61.8% Fibonacci retracement of 134.11-149.72 Oct. 16-Dec. 8 advance) and 137.80 (76.4% Fibonacci retracement).
        EUR/GBP--to consolidate with soft tone before 1200 GMT Bank of England interest rate decision. EUR/GBP undermined by weak EUR sentiment on expectations of further quantitative easing measures from ECB as early as Jan. 22; fears over a possible Greek exit from the eurozone. Daily chart still positive-biased as MACD & stochastics in bullish mode; five-day moving average rising above 15-day moving average. Support at 0.7805 (Wednesday's low); breach would target 0.7792 (Monday's low), then 0.7738 (Friday's six-year low), 0.7692 (Oct. 20, 2008 swing low) and 0.7595 (March 10, 2008 low). Resistance at 0.7853 (Wednesday's high); breach would tilt near-term view positive, targeting 0.7874-0.7877 (Tuesday's high-Dec. 25 high, near 55-day moving average), then 0.7892 (100-day moving average), 0.7930 (Dec. 18 high), 0.7954 (Dec. 17 high) and 0.7979 (200-day moving average).
        Write to Jerry Tan at jerry.tan@wsj.com
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        (END) Dow Jones Newswires

        January 07, 2015 18:40 ET (23:40 GMT)

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