AUD, NZD weak on Chinese data as the FOMC week starts

Market Brief

The Chinese industrial production grew by 6.9% y/y, much worse than expected on year to August (vs. 8.8% exp. & 9.0% last); the retail sales increased 11.9% (vs. 12.1% exp. & 12.2% last). The Asian equities mostly started the week in red, the EM currencies underperformed against the USD. USD/CNY rebounded from 6.1309, and tests the 21-dma (6.1428). The soft data clearly boost expectations for further PBoC stimulus, thus should further weigh on the Yuan. The key support stands at 6.1264 (Fib 38.2% level on January-May rally).

AUD-complex opened with heavy selling pressures on Chinese news. AUD/USD gap opened at 0.9017 (vs. Friday’s close at 0.9038) and sold-off to 0.8984 for the first time in 6 months. Given the oversold conditions (RSI at 24%, 30-day lower BB at 0.9096), we believe a correction is underway before the FOMC meeting (Sep 16-17th). NZD/USD extended weakness to 0.8124 in the shadow of AUD sell-off. The key support is placed at 0.8052 (Feb 4th low), level at which the 2014 gains will be fully pared. AUD/NZD rebounded from 1.1040 (Fib 50% on Nov’13 – Jan’14 drop). The selling pressures in AUD keep the antipodean cross biased negatively. Besides the FOMC meeting, the NZ event risks should also be taken into consideration this week as Sep 20th national elections may result in new challenges for the RBNZ.

USD/JPY and JPY crosses had a smooth start to the week due to Tokyo holiday. USD/JPY traded in the tight range of 107.15/37. Presumed offers at 107.50 (Jap exporters, optionality) kept the upside limited in the absence of fresh news. Higher US yields remain supportive of USD/JPY in the overbought territories (RSI at 82%). The FOMC meeting will be closely monitored. As investors are decidedly aligned toward a hawkish tone from the Fed, any dovish comment should halt the USD/JPY rally. The event risk is high.

EUR/USD consolidates weakness below 1.3000-resistance. The pair will likely stabilize pre-FOMC. As the negative momentum fades, a re-test of 1.2980/1.3000 zone is possible. The EUR-complex is likely to continue getting some support from further unwinding of EUR-funded carry trades as carry strategists will prefer to stay in the sidelines to avoid the event risk on the FOMC. Stops are eyed above 1.3000, while option barriers are placed at 1.3050+.

We are heading into an important week for the UK. On September 18th, Scotland will vote whether to stay in the UK or to leave. The political situation remains tense. Last week’s technical correction brought GBP/USD toward 1.6280; the morning star bet resulted in short-term profit. Heading into this event-full week, trend and momentum indicators are perfectly flat. The GBP-complex remains too sensitive to news/polls on Scottish referendum; the short-term moves are sharp and unpredictable. We stay in the sidelines. Regarding the option strikes, 1.6300 seems the pivot level of the week. Offers trail below, bids dominate above this level.

This Monday, traders watch Swiss August Producer and Import Prices m/m & y/y, Euro-Zone July Trade Balance, US September Empire Manufacturing, Canadian August Existing Home Sales, US August Industrial Production and Capacity Utilization and US August Manufacturing (SIC) Production.