Asia Brief: No data releases overnight. Poor liquidity, plenty of stops-driven moves in the FX market. Yellen remained slightly dovish at Jackson Hole. Draghi’s comment were strongly dovish. He emphasised the need for policies boosting aggregrate demand and said that the ECB will be prepared to conduct LSAP.
Global Markets: Nikkei closed 0.50 % higher on the day, while the ASX rose 0.20 %. The Hang Seng and Shanghai Comp are currently down 0.20 %. Gold is trading at $1278, Silver at $19.44 and Crude Oil at $93.58. The US 10 year yield stands at 2.43.
FX Overview: EUR/USD gapped lower at the Sunday opening, to 1.3191 from a close at 1.3232 on Friday, after dovish comments from ECB President Draghi over the weekend. The pair consolidated around 1.32 for most of the session, but is now declining again in early European trade. Next support seen at 1.3150 and then 1.3105. With clear divergences in the monetary policy outlook, the EUR will remain under pressure across the board, but especially against the AUD, GBP and NZD.
Cable dropped at the open as well and hit a low of 1.6534 in the early Asian session. The pair was able to bounce off that level and has filled the weekend gap. I expect to see GBP getting some support from cross flows over the next few days – especially from EUR/GBP selling.
USD/JPY started the day at 104.25 and consolidated in a 104.12-25 range overnight. Flows were rather light. Specs are likely still keen to buy the pair on dips, but the pair is clearly overbought in the short-term and I’d expect to see a dip towards 103.50 before leveraged names want to reload long positions. Tech support lies at 103.85 and 103.40, while resistance is seen at 104.92 and 105.44. Demand remains strong for the JPY crosses and AUD/JPY took out 97.00 resistance overnight.
AUD and CAD were amongst the better performers in the Asian session, while the Kiwi Dollar crashed, driven by strong AUD/NZD buying overnight. The pair broke above 1.11 resistance and eventually marched towards the 1.1160 level amid steady demand from leveraged funds and fast money accounts.
Overall, I think EUR and JPY will stay offered across the board in the near-term, while we will see a bid Pound and Aussie Dollar, especially in the cross pairs.
Looking ahead for today, we have German IFO data at 0900 BST and US New Home Sales figures at 1500 BST. Keep in mind that most London trading desks will be empty today due to an UK bank holiday.
Good luck!
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