Risk-on start to the week, Asian stocks rally

Market Brief

Asian markets opened the week with good risk appetite. Nikkei 225 surged 3.98% on news that the GPIF will increase allocation on domestic stocks from 12% to 20-30% (RTRS); Hang Seng and Shanghai’s Composite gained 0.50% and 0.58% respectively, the emerging Asia followed: TWSE (+1.77%), Kospi (+1.55%), Sensex (+1.46%), JCI +(1.15%). USD/CNY traded in the tight range 6.1224/75 in Hong Kong. China is heading into a data-full week: 3Q GDP, September retail sales, industrial production and fixed assets (ex-rural) are due tomorrow and should give fresh direction to Yuan. The consensus is a slower GDP growth of 7.2% (vs. 7.5% in 2Q). Soft print will likely cap the recent Yuan strength around the Fibonacci 38.2% (6.1264) that currently acts as good support and lead to some upside correction. Decent option related offers for USD/CNY trail down 6.18 for this week expiry.

USD/JPY and JPY crosses were better bid in Tokyo on GPIF news. USD/JPY advanced to 107.39. Offers are seen at 107.50/108.20 (optionality / 21-dma). Trend and momentum indicators are still comfortably bearish, suggesting limited upside potential in the short-run. Especially now that the JPY weakness worries. Japanese PM Abe hints at possibility of delay in next sales tax hike, there are talks of split at the heart of LDP, the ruling party. EUR/JPY advanced to 137.01, resistance is eyed at 137.48/50 (daily Ichimoku cloud cover).

EUR/USD made a quiet start to the week. We see recovery in peripheral yields amid last week’s heavy sell-off, yet the sentiment remains fragile. Traders chase opportunities to sell the rallies. Offers are seen pre-1.2800; more resistance should come into play at 1.2853/1.2886 (Fib 23.6% on May-Oct sell-off / Oct 15th high). EUR/GBP opened slightly below its 50-dma (0.79252), resistance is eyed at 0.79701/815 (daily cloud cover).

The Cable extends recovery to 1.6135 this Monday, yet the bull-trend is fragile given the event-full week. The BoE minutes are due on Wednesday and may reveal dovish surprise now that we suspect a delay in first BoE rate hike. The 3Q advance GDP data is due on Friday and traders expect softening 3Q growth (from 3.2% to 3.0% y/y). Therefore, the upside attempts in GBP should find sellers. We see resistance at 1.6155 (21-dma), 1.6239 (Fib 23.6% on Jul-Oct sell-off), then 1.6525 (post-Scott referendum rally).

AUD, NZD, CAD did little at week open. USD/CAD consolidates above 1.1200 given the slight cool-off in CPI in September, the recovery in oil prices help limiting weakness in CAD this Monday.

Today, traders watch German September PPI m/m & y/y, Italian August Industrial Sales and Orders m/m & y/y, ECB August Current Account and Canadian Wholesale Trade Sales m/m.

Swissquote Sqore Trade Ideas:

G10 Curreny Trend Model: Short EURUSD at 1.2805

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