High-beta currencies under pressure, GBP skeptical

Market Brief

The weakness in yen continued in Tokyo, the Japanese EconMin Amari refused to comment whether the current FX levels are appropriate or not. USD/JPY extended gains to a fresh high of 107.39, the bullish momentum further strengthen. Japanese exporter offers and light profit taking are presumed at 107.50/108.00. The option bids are solid above 105.00. EUR/JPY broke the 100-dma (138.39) on the upside and stabilized above its daily Ichimoku cloud cover (137.15/91). Trend and momentum indicators are marginally positive; the critical resistance is eyed at 139.86/140.00 (200-dma / optionality). The pair is subject to EUR risk.

EUR/USD traded in the tight range of 1.2915/29 in Asia. Released yesterday, the German and French inflation remained soft in August, in line with market expectations. The Spanish and Italian figures are due today. The Euro-zone August CPI will be released on September 17th; the expectations remain subdued. EUR/USD gains on short-covering in the absence of important data/event. Traders remain sellers on rallies as the Ukraine/Russia tensions and the contamination fears of the Scottish situation are risks that the majority doesn’t want to carry too long. The EU officials announced that additional sanctions will enter into force today. Offers remain solid pre-1.3000.

GBP/USD advanced to 1.6270 (week high) yesterday, yet remained offered below last week low 1.6283. EUR/GBP remained capped by offers pre-21-dma (0.79718). Technicals are perfectly flat as the pair closed are at the MACD pivot yesterday. A week close below 0.79500 should keep the bias on the sell side. However, the GBP-complex is very sensitive to news/polls on Scots independence vote thus the sharp moves are unpredictable. According to the latest YouGov poll, the “yes” vote has retreated from 51% to 48%. Given the uncertainties, we chose to remain on the sidelines.

The high-beta, commodity currencies remain under decent selling pressures due to softening commodity prices. AUD/USD declined to 0.9053, NZD/USD extended weakness to 0.8157. The bias remains on the downside. In Canada, USD/CAD rallied to 1.1060 as the crude oil contracts traded at year lows yesterday. The pair stabilized above 1.1028 (Fib 38.2% from March-July drop). Large option bids are placed at 1.1000/35/50 for today expiry. Next week’s FOMC meeting (September 16-17th) will be closely monitored and should redefine the short-term direction for carry strategies and high-beta currencies. The Fed has good chance to keep its tone balanced, thus traders should stand ready for short-term reversals in capital flows.

Today, traders focus on German August Wholesale Price Index m/m & y/y, Spanish August (Final) CPI m/m & y/y, Italian August CPI y/y, Italian July Industrial Production m/m & y/y and General Government Debt, UK July Construction Output m/m & y/y, Euro-Zone July Industrial Production m/m & y/y, Euro-Zone 2Q Employment q/q & y/y, US August Retail Sales m/m and Import Price Index m/m & y/y, Canadian August Teranet/National Bank HPI m/m & y/y, University of Michigan’s September (Prelim) Confidence Index and US July Business Inventories.