Today Asian markets climbed higher with the news that Japan had better than expected industrial output and that the European Union (E.U.) endorsed a new treaty for the region. Japan’s Ministry of Economy and Trade and Industry reported today that industrial output was greater than economists projected rising by 4.0% rather than 2.9% respectively in December. The ministry had had a more pessimistic outlook for the month according to an accompanying survey. Correspondingly, the projected average January output had fallen to 2.5% from the previous 3.4% estimate. For now, analysts project that industrial output will increase 1.2% in February. In a separate report, the unemployment rate in Japan rose to 4.6% in December from 4.5% in November.
The USDJPY broke below support at 76.50 and is poised to test support at 76.00. While the USDJPY has come under bearish pressure because of the rise in risk sentiment, we don’t recommend going short as intervention by the Bank of Japan is imminent at this point. The Bank of Japan has intervened in October when the pair fell below 76.00 and we see that happening again.
As for the new European pact, nations that signed the treaty committed to implementing a new ‘debt brake’ within their own policies. The treaty is expected to increase nation accountability and heighten observation of member nations. The treaty will enact new voting rules and an automatic correction mechanism that enforces compliance. The Czech Republic and United Kingdom refused the treaty while 17 of the euro region countries as well as eight other member states endorsed the pact. The treaty only needed a minimum of 12 nations to accept and sign for it to become active. European markets went higher this morning with the news. Furthermore, markets are moving with the anticipation that the European banks are about to utilize additional funds from the European Central bank’s emergency fund. Leaders agreed to set a permanent rescue fund the European Stability Mechanism (E.S.M.) which will hold €500 billion. The E.S.M. is expected to become active by July this year as long as it receives approval at the next European summit.
Eugene Ross, Analyst
Admiral Markets
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