Asia Open Briefing

US Brief: US PPI 0.0 % and 1.8 % vs 0.1 % and 1.8 % expected. Canadian Manufacturing Sales 2.5 % vs 1.0 % f/c. WSJ's Fed watcher Hilsenrath said he thinks the Fed will not make a major change in it's policy statement tomorrow. Bank of Canada Governor Poloz repeats BoC is neutral on rates. SINA reports that the PBoC is to provide CNY500 billion to China's top 5 banks through their SLF (short-term liquidity facility). Goldman Sachs says PBoC easing first clear policy response to weak data and equivalent to 50bps cut in RRR. Russian CB starts overnight forex swap operations with banks.

Global Markets: S&P 500 up 0.90 %, DJIA gained 0.70 %. Gold at $1237 (+0.15 %), Silver at $18.74 (+0.60 %), Crude Oil at $93.75 (+1.90 %). US 10 year yield at 2.58.

FX Overview: It turned out to be an interesting trading session after all. The PPI data was leaked a bit ahead of the scheduled release time, but was an non-event. Strong manufacturing sales data out of Canada got some attention however, and the CAD strengthened on this. Later, WSJ's Fed watcher Jon Hilsenrath did a webcast where he said that he thinks the Fed will keep the words "considerable time" (referring to the time period rates will remain low after QE has ended) in it's next statement. This inspired some USD position covering ahead of the FOMC tomorrow evening. Another theme during the NY session was the SINA report that the PBoC will provide 500 billion Yuan to the country's 5 top banks through their short-term liquidity facility. This sparked a rally in the Australian Dollar, which suffered yesterday after weak Chinese data over the weekend, and added pressure on the US Dollar. It will certainly be interesting to see how Asia will react to those two stories. Aside from that, we will have New Zealand Consumer Sentiment data at 2200 GMT and the Current Account figures at 2245 GMT.

EUR/USD rallied to 1.2994 as the stops above 1.2980 got triggered. It failed to sustain momentum once again as leveraged funds sold into the rally. 1.30 will be a tough resistance level, but should the Fed disappoint USD bulls tomorrow, we could see a daily close above the big figure, which would very likely cause further short covering. Despite the obvious EUR-negative sentiment, we should not underestimate the chances of a larger short squeeze in EUR/USD amid crowded positioning. It all depends on the FOMC tomorrow. Intraday support at 1.2935 and then 1.2907.

Cable reached a high of 1.6310 and the market was caught a bit short ahead of the key risk events. There is still decent selling interest ahead of the 1.6325 resistance level, but keep in mind that we have the BoE meeting minutes and UK employment data tomorrow. Along with the uncertainties regarding the Scottish referendum vote, volatility in the pair will remain high. Key intraday support at 1.6250 and then 1.6220. Stops resting through 1.6240.

USD/JPY filled the bids down to 106.80, but remained resilient despite the broad USD weakness. A 106.80-105.30 range seems likely pre-FOMC. AUD/USD hit 0.9111 earlier. Note that there is a A$1.8 billion expiry at 0.91 for tomorrow's NY cut. NZD/USD struggled with 0.8220 resistance and eventually declined back below the big figure. Support at 0.8150 needs to hold, otherwise look for a decline towards 0.8050. Plenty of trailing stops got triggered in USD/CAD today. It looks like it will post a daily close below 1.10 today and a test of the 1.0940 level seems possible pre-FOMC.

Good luck!