JAPAN DATA: "*JAPAN FINAL AUG. INDUSTRIAL OUTPUT RISES 2.7% Y/Y" - BBG [...]

The BBDXY has had a range today of 1194.35 - 1196.57 in the Asia-Pac session; it is currently trading around 1196, +0.15%. The US Dollar’s rebound stalled around 1197 overnight as risk stabilised in the New York session but Asia has not been able to build on that reprieve. An Oil price above $100 for a significant length of time could have severe repercussions all across the globe and risk is starting to show the first signs of cracks appearing. The US Dollar attempted to play catch up overnight to a move that it has been lagging but with the FOMC this week I suspect it's a big ask for any sustained breakout ahead of that. There is strong resistance back toward the 1197-1202 area now and only a sustained break back above 1205 would have me thinking we could potentially see the USD reverse and turn higher again. Warsh should follow through and hike but will there be any hawkish guidance ? If not, does the US Dollar just come back under pressure ? 

• EUR/USD -  Asian range 1.1535-1.1553, Asia is currently trading 1.1535. The pair extended lower yesterday before finding some demand return just ahead of the 1.1500 area. The FOMC and any guidance from Warsh will now be pivotal for which way the US Dollar trades from here. I have been skewed in favour of fading this rally in the EUR, with this pivotal weekly 1.1600 area back in play, how far this bounce in the US Dollar goes will be key. If you are a EUR bear there is now a clear point back above 1.1700 where you are wrong. I suspect that we might continue to do some work albeit with an offered tone until the market sees what Warsh dishes up this week, with 1.1500-1.1650 likely to cover it until then.  
• GBP/USD - Asian range 1.3484-1.3505, Asia is currently dealing around 1.3484. The pair is back testing its first support which was held at the first time of asking. The support is seen toward 1.3450 but the pair is trading with a heavy tone as the US dollar attempts to bounce. The USD is belatedly catching a bid as risk struggles, can it play catch-up to push the GBP back below 1.3450.  
• Data: UK July Weekly Earnings, Unemployment Rate, France Aug. CPI (F), Spain Aug. CPI (F), Germany Sept. ZEW Survey Expectations

Fig 1: EUR/USD Spot Weekly Chart

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

The NZD/USD had a range today of 0.5752-0.5783 in the Asia-Pac session; it is currently trading around 0.5755. The pair has traded heavily again today moving back below the overnight low. On the day, the pair continues to trade with an offered tone and is a clear favorite to express a short. I suspect it might need the US Dollar to actually turn higher for it to sustain a challenge below the 0.5700-0.5750 area though, it's a tough ask ahead of the FOMC. A sustained break below here and the picture starts to look very different with another test of the 0.5500-0.5600 lows potentially on the cards. 

• MNI - NZ Consumer Remains Missing Piece Of Recovery In Q3: NZ’s monthly card spending data are volatile and so it’s unsurprising August saw payback for July’s strength. However, the annual growth rate moderated and the 3-month average momentum turned negative. Through the volatility, spending remains soft in line with lacklustre confidence and consistent with the RBNZ’s caution regarding future tightening and its thoughts on pausing to assess the impact of the previous 50bp of hikes in Q3.
• MNI - NZ  NEW ZEALAND: Polls Signal Two Blocks Very Close, High Risk Of Hung Parliament. BNZ said in August performance of services report that there is “more ground to make up before we can call this a solid turnaround” and that price pressures, rates and election uncertainty are at the fore for many services firms. The RBNZ said that firms are telling it that they are getting on with business despite elevated uncertainty around the 7 November election result. The average of opinion polls are signalling a high probability of a hung parliament with the latest from The Post/Freshwater implying the incumbent coalition with 60 of the 120 seats.
• Options : Closest significant option expiries for NY cut, based on DTCC data:  none. Upcoming Close Strikes : 0.5700(NZD553m Sept 18), 0.5855(NZD757m Sept 17) - BBG
• The NZD/USD Average True Range for the last 10 Trading days: 46 Points

Fig 1: NZD/USD Spot Daily Chart

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

The USD/JPY range today has been 154.21-154.89 in the Asia-Pac session, it is currently trading around 154.65, +0.20%. The pair has drifted back toward 155 where it failed overnight at the first time of asking. Sentiment seems to be changing and those initial green shoots in favour of the Yen seem to be taking hold. CFTC data showed Yen shorts being aggressively unwound. The BOJ has been attempting to communicate they are open to accelerating the pace of hikes and a supportive Scott Bessent has added weight to their endeavors. The BOJ should hike this week but I suspect the path going forward might not be as clear as the market would like. The 149-152 area comes back into play now and we could continue to see some demand return down here initially after what looked an ugly squeeze of Yen shorts. Initial resistance on the day should remain toward the 155.00-156.00 area where I suspect sellers would be looking to fade the bounce first up. It's possible we chop around in the wider 149-161 range until the market can get confidence the BOJ will actually follow through and accelerate the hiking cycle, therefore their subsequent guidance will be crucial.   

• MNI - FRIDAY - BOJ Decision: We align with market consensus and current pricing, which expects the BOJ to raise rates by 25bps next week to 1.25%. However, we expect Governor Ueda to strike a balanced tone at his press conference, seeking to avoid one-sided interpretations of the monetary policy outlook and limit further volatility in the yen and bond markets in either direction. His comments on the cumulative impact of monetary tightening, including the hike expected this month, will also be important in gauging the pace and extent of further normalisation.
• "SUPREME COURT REJECTS TRUMP'S MAIL BALLOT CURBS FOR MIDTERMS" - BBG
• Options : Close significant option expiries for NY cut, based on DTCC data: 152.00($877m). Upcoming Close Strikes : 150.00($2.97b Sept 18), 153.00($2.7b Sept 17), 155.00($3.15b Sept 18) - BBG.
• The USD/JPY Average True Range(ATR) for the last 10 Trading days: 122 Points

Fig 1 : USD/JPY Spot Daily Chart

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