Asian Stocks Drop as Yen Advances

Market Brief

The Asian equities ended the day in red territories; the Nikkei stocks lost 4.00%, Hang Seng and Shanghai’s Composite retreated 1.05% and 0.54% respectively. The PBOC set the yuan at 6.1203 per dollar, the 19-year high.

USDJPY and JPY crosses were offered in Tokyo ahead of the BoJ meeting. The PM Abe had promised to expand easing after the Upper House elections in July (which we may see), but the markets are more focused on the fiscal policy than a simple monetary action. Stops below 97.76 sent USDJPY to 97.00, below its lower Bollinger band (97.25). The next level to watch is the 96.75 –fibonacci 38.2% level on June-July pick-up, once the bids at 97.00 are cleared.

In New Zealand, the Kiwi consolidated gains with solid bids above 0.7886 limiting the downside. The employment change in the second quarter met the market expectations, while the unemployment rate increased from 6.2% to 6.4% due to higher participation rate. AUDNZD traded down to 1.1327, the post-RBA gains are being slowly dropped. Capped by thick set of offers at 0.9000, AUDUSD failed to extend the post-RBA gains and the sellers jumped in to pull the pair back to 0.8951. The home loans increased from 1.8% to 2.7% in June, while the investment lending contracted -0.5%. The bias in AUD remains on the downside.

In US, the trade balance deficit significantly improved from USD 45.0bn down to USD 34.2bn due to lower oil imports and higher total exports in June. While data failed to curb the weakness in USD, the hawkish comments from Fed’s Evans and Lockhart on tapering to eventually begin as soon as September limited the sell-offs.

EURUSD advanced to 1.3323 and remained well supported by bids above 1.3290, while GBPUSD re-tested 1.5390 resistance before easing back to its 50-dayMA (1.5323). GBP traders are in wait-and-see mode before the release of BoE’s inflation report. The markets expect to hear more detail on the forward guidance, involving thresholds on unemployment or the nominal GDP growth, while the inflationary pressures are likely to be mentioned (the latest number being 2.9%, almost 1% above BoE’s 2% target).

Today, traders will watch the Swiss July SECO Consumer Confidence, Bank of France July Business Sentiment, French June Trade Balance, Swiss Jly Foreign Currency Reserves and CPI m/m & y/y, Norway June Industrial Production m/m & y/y, Bank of England Inflation Report, German June Industrial Production m/m & y/y, Us August 2nd Mortgage Applications, Canadian June building Permits m/m and US June Consumer Credit.