Market Brief
Overnight, the BoJ held its monthly meeting and decided, as expected, to keep its qualitative and quantitative programme unchanged at ¥80tn per year. However, we do expect the Bank of Japan will expand the size of its stimulus at the end of the month amid mounting evidence of a slowdown. USD/JPY continues to trade range-bound between 118.61 and 121.75 as investors prefer to sit on the sidelines, waiting for the BoJ semi-annual policy meeting on October 30.
In the equity market, most Asian regional markets extended gains overnight after Wall Street closed roughly flat as investors took a breather from the equity rally. In Japan, the Nikkei climbed 0.94%, while the broader TOPIX index surged 1.17%. In Hong Kong, the Hang Seng rose 1.49%. In mainland China, stock markets are still closed for the Golden Week public holiday. South Korea’s KOSPI is up 0.76%, in Singapore stocks are up 1.45%, Taiwanese’s TAIEX climbed 1.20%, Australia’s S&P/ASX edged up 0.60% while in New Zealand the S&P/NZX fell -0.32%.
In the FX market, commodity currencies are still on the rise, driven by recent strong gains in commodity prices. Since the beginning of the month, WTI surged more than 10%, gold climbed 3.60% to 1,150, silver rose almost 11%, while palladium and platinum are up 9% and 4.30%, respectively. NZD/USD is leading the pack, adding 2% over the last 24 hours, back above the 0.66 threshold. However, the kiwi will need a fresh boost to break the strong resistance lying at 0.6709 (high from August 21st) to the upside. We, however, see limited upside potential as the underlying fundamentals remain weak in New Zealand. AUD/USD is climbing quickly toward the next key level standing at 0.7280 (high from September 18th) in a post double-bottom rally.
Yesterday data showed a slight deceleration of disinflation in Switzerland. Headline CPI remained stable in September compared to the previous month, printing at -1.4% y/y, versus -1.5% expected. The volatile components such as energy, fuel, fresh food and seasonal products continued to weigh heavily on price levels as the core inflation gauge came in substantially higher at -0.7% y/y. On a month-over-month basis, headline CPI increased by +0.1% m/m while the core gauge rose 0.2%. EUR/CHF showed a muted response to better-than-expected data as traders remain reluctant to build long EUR/CHF positions against the backdrop of expectations of an increase in the ECB’s asset purchase programme.
In Europe this morning, futures are mostly trading in positive territory. The DAX is up 1.20%, the CAC 0.98%, the SMI 0.41%, the Euro STOXX 600 +0.87%, while the Footsie fell -0.07%. WTI climbed 2.06%, gold +0.31% and silver 0.47%.
Today traders will be watching the trade balance from France; foreign currency reserves from Switzerland; industrial output from Spain; industrial production from Norway; manufacturing and industrial production from the UK; MBA mortgage applications from the US; inflation report from Brazil.
Currency Technicals
EUR/USD
R 2: 1.1561
R 1: 1.1330
CURRENT: 1.1262
S 1: 1.1017
S 2: 1.0809
GBP/USD
R 2: 1.5659
R 1: 1.5383
CURRENT: 1.5253
S 1: 1.5089
S 2: 1.4960
USD/JPY
R 2: 125.86
R 1: 121.75
CURRENT: 120.01
S 1: 118.61
S 2: 116.18
USD/CHF
R 2: 1.0240
R 1: 0.9903
CURRENT: 0.9661
S 1: 0.9513
S 2: 0.9259