USD/JPY breaks 110.00, Antipodeans extend weakness

Market Brief

USD/JPY advances to fresh 6-year high of 110.09 amid the 3Q Tankan readings showed 8.6% expansion in all industry capex, the large manufacturing index unexpectedly improved. The weakness in non-manufacturing composite and the future outlook limited gains. As the September rally in USD/JPY slows down, markets sell the new tops. Offers trail above 110.00, while option bets are supportive above 109.00/110.00 zone. Focus shifts toward 115.00/120.00 while we believe that the weakness in Yen starts being a concern for the local companies.

In Honk Kong, the protests continue as pro-democracy partisans occupy streets for the sixth day asking for free and open elections. The Yuan traded at two-month lows in Hong Kong, approaching the 100-dma (6.1900).

The Australian retail sales grew 0.1% m/m in August (vs. 0.4% exp. & last). AUD/USD hit 0.8663 (slightly higher than year-low of 0.8660). Trend and momentum indicators are comfortably bearish; the pair should continue testing the 2014-low levels.

EUR/USD extended weakness to 1.2571 yesterday, as the softer CPI readings boost speculations for more ECB stimulus. The ECB will give policy verdict tomorrow; we do not expect further action at this month’s meeting. The ECB will likely stay sidelined waiting for the impacts of its recent actions (TLTRO, ABS/covered bond purchases) to materialize. The sentiment toward the EUR remains comfortably negative, the next support is seen at 1.2500 (Fibonacci 23.6% on July 2012 – August 2014 uplift). EUR/GBP hit 0.77666 yesterday; technicals suggest further room on the downside. GBP/USD trades ranged. The UK manufacturing data should bring some price action in London, yet offers at 1.6280/1.6321 (21-dma/Fib 23.6% on Jul-Sep drop) are to be cleared.

The Kiwi consolidates weakness amid the RBNZ intervention to weaken its currency. NZD/USD sold-off to 0.7709. The Fonterra auction tonight might weigh further on NZD/USD despite the deep oversold conditions (RSI at 22%, 30-day lower BB at 0.7808).

Today, traders are focused on the September Final PMI Manufacturing reads from Sweden, Norway, Switzerland, Spain, Italy, France, Germany, Euro-zone, UK, US and Canada, US September 26th MBA Mortgage Applications, Us September ADP Employment Change, US September ISM Manufacturing and Prices Paid, US August Construction Spending and Italian September New Car Registrations.