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Asian equity markets are predominantly in the red due to ongoing geopolitical concerns related to the Israel-Hamas conflict, which has the potential to affect neighboring countries. The Nikkei 225 has underperformed, breaking below the 32K handle, despite a lack of fresh catalysts. The Hang Seng and Shanghai Composite initially showed varied price action. The Hong Kong benchmark had choppy trading, while the mainland market was pressured. Participants are digesting several recent developments, including the People's Bank of China's decision to maintain the one-year MLF (Medium-Term Lending Facility) rate, as expected. This operation is the largest MLF net injection since December 2020. Furthermore, there is mixed data on new loans and aggregate financing in China. Additionally, it was reported that the US plans to take steps to prevent American chipmakers from selling AI chips to China that circumvent government restrictions. China's securities regulator is also planning to restrict securities lending, which local media suggests could support the markets by tightening rules for short selling.

The upcoming week is expected to bring several important data releases, with a particular focus on the UK. While there are no major data prints at the beginning of the week, ongoing tensions in the Middle East and comments from central bank members will likely be the key areas of interest. In the UK, the Bank of England's Chief Economist, Huw Pill, is scheduled to deliver his latest views on the UK economic outlook at an event organized by OMFIF. The recent UK GDP report revealed a smaller-than-expected rise in output for August and a downward revision for July, indicating a potentially weaker Q3 GDP performance. This might suggest that the rate hikes implemented so far (amounting to 515 basis points since December 2021) are achieving their intended effects. Huw Pill was one of the majority members who supported leaving rates unchanged at the last meeting, so his speech will be closely watched for any hints regarding the upcoming meeting on November 2.

Additionally, in the Eurozone, the focus will be on ECB members François Villeroy de Galhau and Luis de Guindos, while in the US, Patrick Harker, who is a voting member on the FOMC this year, is scheduled to speak. Harker, like some other committee members, has suggested that interest rates may remain unchanged next month, possibly indicating that the recent rise in bond yields could replace an actual policy rate hike.
 

FX Positioning & Sentiment 

FX volatility risk premiums have rebounded to recent highs. Implied volatility in the options market is a gauge of real volatility risk, and the benchmark 1-month expiry has recovered to recent and longer-term highs. This resurgence comes after experiencing steady losses through most of the previous week. The rising oil prices, reflecting concerns about an escalation of the Israel-Hamas conflict and potential spillover effects, are worrying option holders. As a result, they are now reluctant to hold short volatility positions. However, the volatility gains in USD/JPY have been limited in comparison, as the currency pair clings to the 149-150 range. USD/JPY implied volatility also maintains the largest premium compared to past realized volatility.
 

CFTC Data As Of 4-10-23

• The US Dollar Index ($IDX) declined by 1.2% in this period. 
• The Euro (EUR/$) appreciated by 1.36% during the same period, leading to a reduction of -3,411 contracts in speculative positions. The total net long positions now amount to +75,532.
• The Japanese Yen (JPY/$) saw a minor decrease of -0.22%, resulting in an increase of +14,512 contracts in speculative positions. The total net short positions now stand at -99,476, and the pair is close to the key 150 level.
• The British Pound (GBP/$) strengthened by 1.75%, but speculative positions reduced by -3,368 contracts, mainly due to a dovish Bank of England.
• The Australian Dollar (AUD/$) gained 2% in the same period, with speculative positions increasing by +5,410 contracts, totaling -76,577. The AUD has been lower since Tuesday.
• Bitcoin (BTC) saw a modest increase of 0.04%, and speculative positions grew by +95 contracts, reaching +1,151. The expectation of ETF approval supports BTC.
• It's worth noting that the USD has rallied on a more hawkish Federal Reserve outlook since the period ended, and SOFR red contracts suggest an expectation of higher rates for a longer duration. (Source Reuters)
   

FX Options Expiries For 10am New York Cut 

(1BLN+ represent larger expiries, more magnetic when trading within daily ATR)

• EUR/USD: 1.0470-75 (541M), 1.0500 (1.1BLN), 1.0540-50 (1.7BLN)
• 1.0600 (588M), 1.0630 (610M), 1.0650 (788M), 1.0685 (2BLN)
• GBP/USD: 1.2100 (250M), 1.2150 (394M)
• EUR/GBP: 0.8475 (800M), 0.8800 (818M). EUR/NOK: 11.6200 (224M)
• AUD/USD: 0.6325 (300M), 0.6350 (353M), 0.6400 (1BLN). NZD/USD: 0.6000 (300M)
• USD/CAD: 1.3550 (1BLN) , 1.3665-70 (789M), 1.3700 (797M)
• USD/JPY: 148.00 (777M), 149.00 (275M), 150.00 (370M), 150.25 (253M)
• EUR/JPY: 156.85 (270M). AUD/JPY: 93.65 (257M)
   

Overnight Newswire Updates of Note

• The People's Bank of China (PBOC), represented by Governor Yi Gang, noted that China's economy has generally rebounded and expressed the desire for an increase in its International Monetary Fund (IMF) quota.
• China is actively working to create more opportunities for foreign companies to participate in trade, signaling its commitment to fostering international economic cooperation.
• The Reserve Bank of Australia (RBA) is exploring the potential for cost savings through tokenization, a technological advancement that could offer efficiency gains in the financial sector.
• New Zealand's Prime Minister-elect, Christopher Luxon, is set to collaborate with National Party leaders to plan a coalition, shaping the future political landscape.
• European Central Bank (ECB) President Christine Lagarde highlighted that the eurozone's labor market continues to display strength and resilience.
• ECB Executive Board member Isabel Schnabel emphasized that the battle against inflation is ongoing, suggesting the central bank's commitment to price stability.
• Bank of England (BoE) Governor Andrew Bailey expressed his curiosity about the persistence of strong wage growth in the UK, a factor influencing monetary policy decisions.
• Rightmove's data indicates that asking prices for UK homes have shown their smallest October increase since 2008, reflecting potential shifts in the country's property market.

(Sourced from Bloomberg, Reuters and other reliable financial news outlets)
 

Technical & Trade Views

SP500 Bias: Bullish Above Bearish Below 4300

• Below 4290 opens 4270
• Primary resistance  is 4450
• Primary objective is 4424
• 20 Day VWAP bullish, 5 Day VWAP bearish

(Click on image to enlarge)

EURUSD Bias: Bullish Above Bearish Below 1.06

• Below 1.0520 opens 1.0480
• Primary support is 1.05
• Primary objective is 1.0680
• 20 Day VWAP bearish, 5 Day VWAP bearish

(Click on image to enlarge)

GBPUSD Bias: Bullish Above Bearish Below 1.2230

• Below 1.22 opens 1.2150
• Primary resistance  is 1.2410
• Primary objective 1.2350
• 20 Day VWAP bullish, 5 Day VWAP bearish

USDJPY Bias: Bullish Above Bearish Below 149.25

• Below 149 opens 148.50
• Primary support 144.50
• Primary objective is 150.20
• 20 Day VWAP bullish, 5 Day VWAP bullish

(Click on image to enlarge)

AUDUSD Bias: Bullish Above Bearish Below .6400

• Above .6475 opens .6525
• Primary resistance  is .6620
• Primary objective is .6270
• 20 Day VWAP bearish, 5 Day VWAP bullish

(Click on image to enlarge)

BTCUSD Bias: Bullish Above Bearish below 27500

• Above 28600 opens 30000
• Primary resistance  is 28175
• Primary objective is 30000
• 20 Day VWAP bullish, 5 Day VWAP bullish

(Click on image to enlarge)

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