Market Brief
Volatility has begun to creep into FX markets as traders refocus on economic fundamentals rather than geopolitical risks. Asia's regional indices were broadly higher (extension of US rally) as the Nikkei rose 0.06%, Hang Seng up 0.08% yet Shanghai fell marginally -0.09% (but climbing). USD was stronger against all G10 and most EM Asian currencies as yesterday US data indicated that the housing market is perhaps stronger than forecasted. Housing start rose 1093k verse 965k expected and revised 945k increase in June. The story in Asia trading was around the AUD and NZD price action. AUDNZD saw heavy buying as RBA governor Stevens honestly testimony to a parliamentary economic committee indicated that additional interest rate cuts were less likely and would consider intervention but is doubtful it would be effective. The cross rallied to 1.1092 (8-month high) with reports of large NZD sell order hitting the market. Consequently NZDUSD dropped sharply breaking support at 0.8415, which then triggered resting offers. The movement was less in AUDUSD which rallied to 0.9318 on Stevens comments but quickly retraced earlier gains. Clearly USD is on a bullish run yet we suspect a pause prior to key speech by Fed chair Yellen at Jackson Hole Friday. Risk appetite further improved as Asian bond yields rose marginally. From Japan, exports increased 3.9% y/y in July above consensus for 3.8%, recovering after two months falls. Imports were buoyant, increasing 2.3% y/y in July following an increase of 8.4% in June.
Steven speaks frankly
RBA governor Stevens sounded less dovish in the Asian session, making some very direct and clear comments. He stated that lower policy rates would be consider only if he thought it would help. However, in the current economic environment which suffers from a lack of confidence, he doesn’t think rate adjustments would be the right answers. He was also clear that inventions was an important tool and would consider FX intervention, however, again he doesn’t view the actions as being appropriate or effective so far.
BoE & FOMC Minutes
In the European session, UK BoE Minutes will grab the spotlight. Policy debate within the MPC has increased with the committee focused on slow wage growth. There is significant possibility that one or ever two member have voted for hike in August. Elsewhere, UK CBI Industrial Trends Orders in August is expected to rise to 4 following a 2 print in July. In the US, release of the July 29-30 FOMC minutes is expected to demonstration that stronger labor market data has increased the debate around exit strategy within the Fed. Given the expectation of the BoE and Fed moving towards tighter policy ahead of G10 peers we remains constructive on GBP and USD.
Currency Tech
EURUSD
R 2: 1.3386
R 1: 1.3373
CURRENT: 1.3361
S 1: 1.3353
S 2: 1.3345
GBPUSD
R 2: 1.6751
R 1: 1.6734
CURRENT: 1.6724
S 1: 1.6714
S 2: 1.6700
USDJPY
R 2: 102.75
R 1: 102.67
CURRENT: 102.59
S 1: 102.52
S 2: 102.41
USDCHF
R 2: 0.9081
R 1: 0.9073
CURRENT: 0.9065
S 1: 0.9057
S 2: 0.9048