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Technically the medium-term target of the USD/JPY (based off triangle formation of the May 22 high) is for around 108.00. However, Elliot wave technicians would be looking for an initial target on the pair of 104.71. It was certainly positive for the pair that we saw a four basis points increase in the US ten-year overnight, however USD/JPY hasn’t really reacted too strongly. At 10:50 AEDT we the weekly Ministry of Finance (MoF) fund flows and after eight weeks in which Japanese domestic funds have been buying foreign bonds, could we see a ninth? One of the key components of ‘Abenomics’ is to encourage pension funds to buy foreign bonds and thus create JPY outflows. A good number today could see USD/JPY push back to the 103.00 level.
The pair saw good selling overnight and the AUD bears will be eyeing a move back to the recent low of A$0.8990. We know there have been good bids coming into the market on moves below the 90 handle, so it will be interesting to see if this level holds this time around. The market is still pricing in five basis points of hikes from the RBA, despite a number of negative news releases of late, a non-urgent easing bias and the market continuing to favour tightening over rate cuts. Employment is always a key focus for the RBA and therefore today’s jobs data could be the catalyst for new volatility in the AUD. As things stand the market expects 10,000 jobs to be created, with Market Economics the most optimistic at 35,000, while RBC expects no net jobs to be created. The unemployment rate is also expected to tick up ten basis points to 5.8%. Keep an eye on the participation rate as well, which at a multi-year low.
With US bond yields moving higher we have seen gold under modest pressure. My stance is much more neutral on gold and until we see the USD trend higher, we are not going to see sizeable selling of gold again. Key resistance on gold comes in at $1269 (the 38.2% retracement of the $1361 to $1210 sell-off) and a break here could see the medium-term downtrend at $1310 come into play.
After yesterday’s operational update, OZL was smashed; with the low coming in at $2.08. If you look at price action alone (I look at candlesticks) it must be said that the wave of buying that came in from the lows was highly impressive and the bulls will be hoping it can close yesterday’s gap to $3.09. Fundamentally the guidance for calendar year 2014 is disappointing; with analysts pointing to the skew of production heavily weighted to the second half of the year. Costs are also an issue and we could see revisions to cost guidance in the medium term. Given the falls we have seen GMP and Citigroup upgrade the stock to ‘buy’.