MNI China Daily Summary: Tuesday, October 15

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FOREX: JPY Gains on Soft Asia-Pac Equities, Oil-tied FX Fades Further

FOREX
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  • JPY strength gathered pace overnight on the mixed performance for Asia-Pac equities, as Hong Kong names are headed for a particularly weak close. Hang Seng is lower by over 4% just ahead of the local close, and a close at current or lower levels would reverse the rally posted since end-September, with concerns over the potential minimal impacts of stimulus, geopolitical risk and soft China data out yesterday and over the weekend continuing to weigh on sentiment.
  • USD/JPY now targets the week's low at 148.98 initially, but support is seen stronger into 147.53, the 23.6% retracement for the recovery off the mid-September low.
  • GBP/USD building well off the overnight pullback lows of 1.3036, with volumes picking up across both the jobs data this morning as well as the European open. Cumulative futures activity now sits just over 30% ahead of average for this time of day. The 20- and 50-day EMAs are converging to form layered resistance between 1.3104-51 - clearance here is needed to firm any recovery - which could be triggered by an upside surprise in tomorrow's inflation print and the read-through for year-end BoE pricing (currently ~35bps of cuts showing in OIS by Dec-31).
  • Oil-tied FX is suffering from the broad pullback in crude oil prices, keeping NOK and CAD offered. Source reports this morning suggested that Israel would not target Iran’s oil and nuclear infrastructure but would focus on military sites in any future strikes.
  • Canadian inflation data for September crosses later today, with markets expecting the Y/Y headline to fade to 1.8% from 2.0% although the BoC's preferred core inflation measure is seen unchanged at 2.4% - any variance here could help drive market conviction for the BoC's October decision, with pricing keenly split between a 25 or a 50bp rate cut.
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  • JPY strength gathered pace overnight on the mixed performance for Asia-Pac equities, as Hong Kong names are headed for a particularly weak close. Hang Seng is lower by over 4% just ahead of the local close, and a close at current or lower levels would reverse the rally posted since end-September, with concerns over the potential minimal impacts of stimulus, geopolitical risk and soft China data out yesterday and over the weekend continuing to weigh on sentiment.
  • USD/JPY now targets the week's low at 148.98 initially, but support is seen stronger into 147.53, the 23.6% retracement for the recovery off the mid-September low.
  • GBP/USD building well off the overnight pullback lows of 1.3036, with volumes picking up across both the jobs data this morning as well as the European open. Cumulative futures activity now sits just over 30% ahead of average for this time of day. The 20- and 50-day EMAs are converging to form layered resistance between 1.3104-51 - clearance here is needed to firm any recovery - which could be triggered by an upside surprise in tomorrow's inflation print and the read-through for year-end BoE pricing (currently ~35bps of cuts showing in OIS by Dec-31).
  • Oil-tied FX is suffering from the broad pullback in crude oil prices, keeping NOK and CAD offered. Source reports this morning suggested that Israel would not target Iran’s oil and nuclear infrastructure but would focus on military sites in any future strikes.
  • Canadian inflation data for September crosses later today, with markets expecting the Y/Y headline to fade to 1.8% from 2.0% although the BoC's preferred core inflation measure is seen unchanged at 2.4% - any variance here could help drive market conviction for the BoC's October decision, with pricing keenly split between a 25 or a 50bp rate cut.