Central Bank meetings in focus this week

Market Brief

The week starts with soft economic data out of Asia. The Japanese capital spending grew at the pace of 3.0% in 2Q (vs. 4.1% exp. & 7.4% last), China and Japan manufacturing PMIs came in slightly lower in final August reading. Australia’s AiG manufacturing index stepped in the contraction zone (47.3 in Aug vs. 50.7 a month ago). Asian equities made a good start despite soft data and tensions in Ukraine. Nikkei stocks gained 0.34%, Hang Seng ad Shanghai’s Composite added 0.18% and 0.62% (at the time of writing).

JPY crosses opened mixed. USD/JPY advanced to 104.21 early in Tokyo and remained well bid above 104.00. Broad based USD demand and sustained risk appetite keep USD/JPY marginally bullish. Decent option bids trail above 103.00/25, while barriers are presumed at 104.50/105.00. EUR/JPY traded in the tight range of 136.66/83. Trend and momentum indicators are flat, offers are seen at 137.00/55 (including 21 and 50-dma). The BoJ gives policy verdict on Thursday and no changes are expected.

In Australia, soft data had little impact on FX trading. We are heading into an event-full week for AUD-complex. The RBA meeting (Tue), 2Q GDP (Wed), retail sales and trade data (Thu) should shape the short-term direction this week. The pair is currently stuck within 0.9240/0.9375 range, a breakout in either way is required to confirm short-run direction. In New Zealand, the better-than-expected trade terms gave support to NZD/USD above 0.8348. The trade terms remain at 40-year highs despite 5.3% drop in export volumes (and 2.0% in export prices). NZD/USD advanced to 0.8379 overnight, offers are eyed at 0.8400/28 (optionality / 21-dma). A daily close above 0.8342 (MACD pivot) will keep the tone marginally bullish.

EUR/USD extended weakness to 1.3119 at the week opening. The EUR sentiment remains comfortably bearish. The next key support stands at 1.3105 (6th Sep 2013 low). The option related offers should back up the EUR weakness through this week. Solid barriers abound pre-1.3200. After Friday’s drop, EUR/GBP remains offered. The pair extended losses to 0.78971 (at the time of writing), as bearish momentum strengthens. The key support stands at 0.78743 (July 23th low). The ECB gives verdict on Thursday and we do not expect any surprise.

The BoE will also announce policy on Thursday and is expected to maintain the status quo. After rebounding from 1.6500, GBP/USD remains under selling pressures pre-1.6650. Technically, 21-dma (1.6689) tests 200-dma (1.6695) on the downside, suggesting some more interest in GBP-short positions. Resistance to remain solid below the 200-dma (1.6695).

The US and Canada are closed today, due to Labor Day holiday, so we expect a slow Monday. In Europe, traders are focused on German 2Q(Final) GDP q/q & y/y, German 2Q Private Consumption, Government Spending, Capital and Construction Investment, Domestic Demand, Exports & Imports, August PMI Manufacturing in Sweden, Norway, Switzerland, Spain, Italy, France, Germany, UK and Euro-Zone, UK Net July Consumer Credit and Net Lending Sec. on Dwellings, Mortgage Approvals and M4 Money Supply.