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Asian Open: USD/JPY Hits A 3-Year High Ahead Of Japan’s Trade Data

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Fundamental analysis of Forex market

The USD extended its post-CPI gains due to strong retail sales data, with only GBP slightly outperforming it as bets are now on for BOE to hike in December.

Asian Futures:

  • Australia’s ASX 200 futures are up 19 points (0.26%), the cash market is currently estimated to open at 7,439.40
  • Japan’s Nikkei 225 futures are up 60 points (0.2%), the cash market is currently estimated to open at 29,868.12
  • Hong Kong’s Hang Seng futures are down -48 points (-0.19%), the cash market is currently estimated to open at 25,665.78
  • China’s A50 Index futures are down -42 points (-0.27%), the cash market is currently estimated to open at 15,565.01

UK and Europe:

  • UK’s FTSE 100 index fell -24.89 points (-0.34%) to close at 7,326.97
  • Europe’sEuro STOXX 50 index rose 15.3 points (0.35%) to close at 4,401.49
  • Germany’s DAX index rose 99.22 points (0.61%) to close at 16,247.86
  • France’s CAC 40 index rose 23.97 points (0.34%) to close at 7,152.60

Tuesday US Close:

  • The Dow Jones Industrial rose 54.77 points (0.15%) to close at 36,142.22
  • The S&P 500 index rose 18.1 points (0.39%) to close at 4,700.90
  • The Nasdaq 100 index rose 120.653 points (0.75%) to close at 16,309.77

Strong retail sales in the US saw indices move back towards their record highs a consumers defined any gloom apparent in a recent consumer sentient report. The Nasdaq 100 was a top performer as it tracked yields higher, with futures markets for Japan and Australian pointing towards a firmer open.

Dollar buying shows no immediate signs of abating.

We’re in one of those macro moves that comes once or twice a year where momentum makes a mockery over the word “overbought” or “oversold” as markets move seemingly in a straight line. And a stonking retail sales report certainly helped the dollar, as consumers looked past any concerns they may have about their finances suggested in Friday’s Michigan Consumer Sentiment Index. The US dollar index is trading just shy of 96.0, although take note of the resistance cluster in the area which includes the upper trend channel. The euro is seemingly headed for 1.1300 and now sits at its lowest level since July 2020, but if it holds above 1.13 then we’d expect the dollar index to stall around 96 (even if only temporarily).

UK employment all but confirms a BOE hike in December

Well, against the British pound at least. Yesterday’s employment report for the UK revealed that the employment situation held steady despite the furlough scheme ending in September, with around 1 million people still on it. As this was a key concern for BOE, and the reason they had not raised rates at their last meeting, bets are now on for them to raise rates at their next meeting in December.

The pound was a top performer, rising against all its major peers. GB/NZD was the strongest cross, GBP/CHF hit a 2-week high and retested 1.2500 and EUR/GBP fell to a 2-day low.

We’re ‘flagging’ USD/JPY at its 3-year high

Rising yields (and relative differentials) have continued to support USD/JPY, which traded to its highest level in over 3-year overnight. We can see on the daily chart that the false break below 113.0 marked its corrective low and yesterday’s range expansion day saw it break out of a flag formation / corrective channel. This also means that momentum has realigned with the strong bullish move preceding the flag, so out bias remains bullish above 113.78 (but prices should hold above yesterday’s low if this is in fact a flag breakout).

Wage growth in focus for RBA watcher

There’s little hope of any fireworks today, given the RBA’s overtly dovish stance, but a rise in wages is a key ingredient the RBA want to see (alongside high inflation) to get the hawkish balls rolling. So traders will keep an eye on Australia’s wage growth at 11:30 AEST.

But first, trade data from Japan and machinery orders are released at 10:50. Given growth was worse than expected this week then BOJ would like to see exports and machinery orders excel. Anything short of that simply points to weaker growth in Q4.

Precious metals pullback

Gold, silver and platinum are in a corrective phase after their strong gain last week, with all forming bearish engulfing candles at their highs. In some ways it’s a relief as it removes some potential FOMO and perhaps a better entry for bulls to consider reloading as the retracement matures. Platinum is back below $1100, silver has stumbled after failing to hold above $25 and the monthly R1 pivot and gold (arguably the most bullish) has pulled back to $1850 near the monthly R2 pivot. We remain bullish above 1834, which makes a near-term bearish bias but we’d prefer to seek any bullish setups above that level.

ASX 200 Market Internals:

ASX 200: 7420.4 (-0.67%), 16 November 2021

  • Information Technology (0.18%) was the strongest sector and Materials (-1.66%) was the weakest
  • 1 out of the 11 sectors closed higher
  • 10 out of the 11 sectors closed lower
  • 6 out of the 11 sectors outperformed the index
  • 40 (20.00%) stocks advanced, 150 (75.00%) stocks declined
  • 61% of stocks closed above their 200-day average
  • 47.5% of stocks closed above their 20-day average

Outperformers:

  • + 3.71%-Chalice Mining Ltd(CHN.AX)
  • + 2.61%-Virgin Money UK PLC(VUK.AX)
  • + 1.81%-NEXTDC Ltd(NXT.AX)

Underperformers:

  • -8.68%-Mesoblast Ltd(MSB.AX)
  • -4.39%-Pendal Group Ltd(PDL.AX)
  • -4.05%-Iluka Resources Ltd(ILU.AX)

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