FOREX: Asia FX Wrap - USD: Can The Bounce Extend?

The Asia-Pac USD/JPY range has been 147.27-147.57, Asia is currently trading around 147.40, -0.01%. USD/JPY collapsed lower overnight giving the support towards 146.00 a proper test, but it proved to be solid once again as the market looks towards the US inflation data this week. The price then very quickly retraced back to the middle of its 146-149 range once more. CFTC data shows leveraged funds again added a decent clip to their short JPY position last week so they will be hoping the inflation data this week keeps this support intact. A move back below 145/146 is needed to potentially start seeing these positions being flushed out.

• It seems some protection lower down is being added to, in the event the support gives way. “Hedge funds added to bullish options wagers on the Japanese yen Tuesday following news that Bank of Japan officials were open to the idea of raising interest rates again this year, despite the political instability.” - BBG
• (Bloomberg) - USD/JPY will see more downside if Bank of Japan officials hammer home the point that another rate hike is possible this year. But FX traders remain skeptical about the prospect of higher rates.
• "AKAZAWA: WAGE GAINS SHOULD BE PRIORITY OVER TAX CUTS, JBIC WON'T FUND WHAT WON'T BENEFIT JAPAN" - BBG
• Options : Close significant option expiries for NY cut, based on DTCC data: 146.50($902m).Upcoming Close Strikes : 147.40($1.38b Sept 12), 150.00($1.11b Sept 11)  - BBG.
• CFTC data shows last week asset managers again added to their JPY longs after a consistent period of reduction +78427( Last +76761), leveraged funds though again used the dip to add a decent clip to their newly built short JPY position -66914(Last -52275). One of them is going to be wrong.

Fig 1 : USD/JPY Spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P

The AUD/USD has had a range of 0.6580 - 0.6606 in the Asia- Pac session, it is currently trading around 0.6605, +0.30%. US stocks are back at their highs even after record revisions to the payrolls data, nothing stops this train. The AUD is probing above 0.6600 again, having stalled overnight as the market awaits the inflation data this week. The AUD remains in its recent multi-month range of 0.6350-0.6650, should the USD break and extend lower we could potentially see the AUD break back above 0.6650. Should this occur it could provide the upward momentum to target levels back towards 0.6900/0.7000. Although still in the range the bias will be for dips back to 0.6500 to be supported for now.

• China Inflationary Pressures Fall Further: With some key onshore news suggesting that further monetary policy intervention is getting closer, today's CPI and PPI did little to dissuade that way of thinking. CPI in August declined -0.4%, ahead of estimates of -0.2% and the biggest drop since February.
• Melbourne Institute consumer inflation expectations for September are released on Thursday. It moderated substantially to 3.9% in August but the 3-month average has been around 4.5% since June.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6550(AUD797m). Upcoming Close Strikes : 0.6650(AUD597m Sept 11) - BBG
• CFTC Data last week shows Asset managers reduced their shorts for the first time in a while -66025(Last -78758), the Leveraged community though look to be rebuilding their own shorts after winding them down -11860(Last -6447).
• AUD/JPY - Asia-Pac range 96.99 - 97.29, Asia is trading around 97.20. The pair topped out towards 97.50 but has consolidated its recent gains. A sustained break above 97.50/98.00 is needed to reignite the upward trend.

Fig 1: AUD/USD spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P

Oil prices are higher again during today’s APAC trading after rising around 0.8% on Tuesday finding support from increased Middle East tensions following Israel’s strike on Hamas leaders in Qatar. WTI is up 0.9% to $63.22/bbl, close to the intraday high, and Brent is 0.9% higher at $67.01/bbl. The USD index is down 0.1%.

• Brent has broken above initial resistance at $69.53 opening up key resistance at $71.93. This week’s gains are still seen as corrective but a break of $71.93 may change that.
• The FT reported that President Trump told European representatives that he’s prepared to impose the same tariffs as Europe on China and India for buying Russian energy. However, Trump said he had spoken with his “good friend” Indian PM Modi and that trade negotiations were ongoing between them and that he expects “a successful conclusion for both”.
• Bloomberg reported that there was a US crude inventory build of 1.3mn barrels last week, according to those familiar with the API data. The official EIA data is out Wednesday.
• Later August US PPI data are released and will be watched closely given that a 25bp rate cut is fully priced in for September 17. CPI is out on Thursday. The ECB’s Buch speaks today.