Asian FX Outlook: China's trade balance up next, USD strength not convincing

Main market focus 

China's trade balance is the sole focus in the Asian session. It is worth noting that ever since August, trading volumes in China have been on the decline. Traders will monitor the difference between imports and exports to adjust positions on FX beta currencies AUD, NZD, with the data likely to have an impact on the overall risk sentiment as well. 

As Trump continues his tour around Asia, traders should monitor for any escalation in rhetoric towards North Korea. So far, on his visit to South Korea, Trump has maintained a firm stance against the isolated regime, while also striking a conciliatory note if North Korea were to take steps back on its nuclear program.

IMF's Head Chrisine Lagarde, BOJ Governor Kuroda and Japanese FinMin Aso are set to speak in Tokyo today. While there are no expectations for any market moving headlines.,it is worth keeping an eye. 

RBNZ meeting in less than 24h is the next major event for FX. Market participants expect the RBNZ to leave the official cash rate unchanged. A slightly more optimistic tone may come through the statement given the pick up in economic data seen since the last meeting.

In the US, House Republicans keep working on the U.S. tax reform bill, with a vote expected next week. The latest talk, via WAPO, suggests that Senate GOP are said to consider 1 yr corporate tax cut delay. Multiple US tax bill-related headlines are yet to come, likely to inject further short term volatility in USD-denominated assets. 

Major forex market movers

EUR/USD: It is becoming more obvious that the present slide in value is potentially providing a buying opportunity if one takes as reference the intrinsic value of the DE10y vs US10y yield spread, which is well off lows despite the decline in the pair, not to mention the yield curve between in the 10ys, with German yields making new highs vs the US. A recovery and acceptance above 1.16 this week should be the first tentative evidence of a potential recovery.

GBP/USD: Unlike EUR/USD, the rise in GBP/USD is not underpinned by rising UK vs US 10y yield spreads, although the curve does, with the difference in yields between UK and US in the 10ys suggesting a constructive picture. Breaking above 1.3180 will be key as the area represents the 50% fib retrac of the BoE-led fall + 200-hourly MA. Failure to do so exposes 1.31.

USD/JPY: The pair is susceptible to downside risks should risk friendly conditions deteriorate. Last Monday's price action (bearish engulfing at a key resistance) and intrinsic valuations (US vs JP 10y yield spread) justify lower prices. The one factor preventing lower levels in USD/JPY at this point appears to be buoyant equities, with the Nikkei 225 at its highest since 1992.

AUD/USD: The area of resistance 0.77 saw macro accounts re-instating short positions post RBA. The Central Bank offered little changes in its monetary policy, which seems to be seen as a risk out of the way for the downtrend to resume, if one judges Tuesday's price action, where a bearish outside day was printed. AU vs US 10y yield spreads agree. 

What happened in the US?

US Sept JOLTS Job openings came at 6.093 mln, 6.091 mln exp, 6.090 mln last, which represent a near record high reading

US Senate Majority Leader McConnell supports the appointment of Powell as next Fed Chair

BoC's Poloz says that inflation risks are set to rise with full output and eployment

Economic calendar