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USDJPY Consolidates Overnight Decline, EMFX Surges

FOREX
  • A confluence of factors led to the greenback falling out of favour on Monday, which has prompted the USD index to retrace roughly 0.55% lower to start the week.
  • First of all, stronger than expected August credit data in China has provided risk sentiment with a firmer backdrop, boosting global indices, benefitting more risk sensitive currencies and weighing on the dollar. Additionally, hawkish commentary from Bank of Japan’s Ueda has prompted a substantial correction lower for USDJPY and taking the shine off the USD index as a whole. Furthermore, after the impressive string of winning sessions for the index, the close proximity to the US CPI data and next weed’s Fed decision, market participants may be taking an opportunity to lock in some profits.
  • Although the daily G10 ranges have not altered much throughout US hours, there was some notable movement for USDJPY (-0.90%) which after bouncing over 100 pips from the 145.91 lows, then resumed its intra-day downtrend before settling around 146.50 as we approach the APAC crossover.
  • Overall, trend conditions remain bullish for USDJPY and on the downside, 144.45 represents the key short-term support, the Sep 1 low.
  • The more positive mood across markets has seen the likes of CNH and AUD consolidate gains of around 0.8% on the session, however, the emerging market fx basket has really outperformed across the US timezone.
  • This has been most noticeable in USDMXN, declining 1.7% to trade back to 17.30 with some better-than-expected industrial output figures providing an additional MXN tailwind. On the downside for USDMXN, support to watch lies at the 50-day EMA which intersects at 17.1243. In similar vein, the South African Rand has risen 1.4% amid a noticeable uptick in the metals complex.
  • UK unemployment and German ZEW sentiment data will highlight the economic calendar on Tuesday, however, the focus will quickly turn to US August inflation data which is due on Wednesday.
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