Summary:

• US dollar gains against all its major peers in G10, being set for its second best week this year
• New Zealand retail sales beat forecasts but the kiwi remains on the back foot
• Japanese inflation increases above expectations being still well off the BoJ’s target though

Looking back to Monday it’s worth recalling that we pointed to a possible rebound in the greenback which has materialized quite well thus far. Being just several hours before the week close one may make a short recap illustrating that the US currency has been by far the best performing one while the Canadian and the NZ dollars have been beleaguered the most. The state of play also shows that the buck is the best one in early trading on Friday as the shared currency has gone off the boil recently trimming its unexpected jump following the ECB minutes (with a significant delay though). In turn, the NZ dollar is losing the most despite a robust release of retail sales. It came in at 1.7% qoq for the fourth quarter while the median estimate had indicated 1.4% qoq. In terms of a year-over-year basis there was a 5.4% pick-up against 4.6% expected. The details suggest that 11 out of 15 retail industries witnessed an improvement which, by and large, should be a NZD positive but it has not so far.

A technical view seems to suggest that pair could be heading south over the next several hours as bears may eye 0.72 as their nearest target. Do notice that the price failed to break above a crucial supply zone localized at 0.74, so along with the reinvigorated US dollar demand one may count on an extended correction before an uptrend resumption when the greenback’s strength dissipates. Source: xStation5

On top of that, the Japanese inflation report seems to be worth attention alike even as it rarely influences the currency. The story repeated this time round as well and for all a higher than expected increase in price growth the yen remained unimpressed. As everybody well knows Japan has many miscellaneous gauges of inflation, however, the core one stripping out both food and energy is the salient measure as the BoJ focuses on it.

Japanese core inflation remained well off the target in January. Source: Macrobond, XTB Research

This indicator showed 0.4% yoy beating the consensus at 0.3% yoy but underlining at the same time that the Bank of Japan has still a lot to do in order to bring inflation back to its goal. In turn, headline CPI grew 1.4% yoy while national CPI excluding fresh food picked up 0.9% yoy – both reading came in above anticipations pointing 1.3% yoy and 0.8% yoy respectively.

The pair seems be at a key place when we look at a weekly time frame. One may suspect that without a breakout above 107.4 a larger increase could be contained therefore JPY bulls may open the way for further gains. Notice that the JPY (along with the pound) was the most resilient currency to the ongoing bounce in the greenback. Source: xStation5