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Asian equity markets posted mixed performance, as the local markets mostly remained range bound. A flurry of earnings releases influenced the atmosphere, while caution prevailed ahead of forthcoming US inflation data. Additionally, market participants deliberated on US initiatives to limit investments in select Chinese tech companies. The Nikkei 225 index (+0.7%) ultimately gained due to a weaker currency, although it initially experienced fluctuations driven by mixed Producer Price Index (PPI) data. In Japan, the news landscape was dominated by corporate earnings releases, which continued to act as major drivers for significant shifts in individual stock values. On the other hand, the Hang Seng index and the Shanghai Composite index faced downward pressure. Sentiment was clouded by US President Biden's executive order, which aimed to prohibit certain new investments in specific sensitive areas of Chinese technology, such as semiconductors, microelectronics, quantum information technologies, and certain AI systems. China criticised this move.

The primary focus of the day will be on the release of US Consumer Price Index (CPI) data at 13:30 BST. Financial markets will closely scrutinise the data for any indications that could provide clarity regarding the future interest rate outlook, particularly after the mixed labour market report from the previous week. Despite US CPI inflation having dropped to 3% year-on-year in June, the expectation is for July's figure to show a minor uptick to 3.3% year-on-year due to unfavourable base effects from the previous year. However, the month-on-month change in prices is projected to support the notion of a gradual economic adjustment, with an anticipated increase of market consensus at 0.2%. Recent increases in gas prices are likely to have a stronger influence on next month's CPI figures (August), potentially posing an upside risk to the monthly data being released today. On a broader scale, the movement in oil prices and renewed concerns about food security as the year progresses suggest that the lowest point for headline inflation this year might already be behind us. In contrast, 'core' inflation, which factors out volatile components, saw a slowdown to 4.8% year-on-year last month. This decline was concentrated in a few specific areas of the inflation basket, possibly magnifying the extent of the decrease. Therefore, it's expected that there will be a slight rebound to 4.9% year-on-year in July for core inflation. However, in contrast to the headline rate, core price inflation is projected to diminish further in the latter half of 2023.
 

CFTC Data As Of 08-08-23

• Tuesday FX close, $IDX +0.52%, hints at little change in Majors positioning
• Fri's CFTC spec data release likely to show little chg in EUR, JPY positions
• USD largest gain vs AUD, CAD & CNH on lower global growth outlook
• EUR$ -0.31% in Aug 2-8 CFTC reporting period, as ECB hike cycle nears end
• $JPY +0.1% in period, had rallied 2-big figures off period low
• GBP$ -0.22% in period, pair hovers near trend low on lwr BoE rate outlook
• BTC +2.6% in period, lower rates seen supporting BTC
• Retail extreme net longs in $JPY, EUR$ suggests EUR$, $JPY may be ripe for selling (Source: Reuters)
   

FX Options Expiries For 10am New York Cut 

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

• EUR/USD: 1.0890-1.0900 (2.5BLN), 1.0925-30 (1.1BLN), 1.0965-70 (744M)
• 1.0990 (350M), 1.1000-05 (2.2BLN), 1.1020-25 (2.1BLN), 1.1095-1.1100 (800M)
• USD/CHF: 0.8615 (500M), 0.8660 (865M), 0.8795 (500M), 0.8900 (248M)
• EUR/CHF: 0.9550 (400M)
• AUD/USD: 0.6565 (1.1BLN), 0.6600 (296M), 0.6640 (400M), 0.6675 (1.1BLN)
• GBP/USD: 1.2600 (431M), 1.2620-30 (336M), 1.2655-65 (340M), 1.2740 (513M)
• EUR/GBP: 0.8585-90 (366M), 0.8625 (380M), 0.8750 (300M)
• USD/JPY: 142.00 (350M), 143.00 (286M), 144.40-50 (328M).
• AUD/JPY:95.10 (329M), 96.10 (329M)
   

FX Options Positioning

The USD/JPY currency pair has a well-known sensitivity to fluctuations in FX volatility tied to market risk. However, the indicator for measuring this risk, known as implied volatility, currently appears to be at a low level. Notably, overnight implied volatility has drawn attention, particularly due to the inclusion of the U.S. Consumer Price Index (CPI) data scheduled for Wednesday. This measure of volatility increased modestly by 4.0 points to reach 15.5, only to decline by 2.0 points by the close of Wednesday's trading session. It then rebounded to 15.0 on Thursday, but this gain lagged behind other G10 currency pairs that had experienced more sustained initial increases. If the U.S. CPI data diverges significantly from expectations, the USD/JPY pair would typically exhibit the most pronounced reaction. The overnight expiry USD/JPY implied volatility at 15.5 corresponds to a 92 Japanese yen pip break-even point. It's worth noting that the implied volatility for this contract was at 17.5 before the release of the July Non-Farm Payrolls (NFP) report, at 20.0 prior to the July Federal Reserve announcement, and at 40.0 ahead of the July Bank of Japan (BoJ) statement. Given these factors, it's possible that overnight USD/JPY may offer the most attractive proposition for securing protection against CPI-related volatility movements.
 

Overnight Newswire Updates of Note

• Japan PPI (Y/Y) Jul: 3.6% (est 3.5%; prev R 4.3%)
• China Expresses Disappointment Over US Technology Investment Restrictions
• Japan’s PM Kishida Plans A Cabinet Reshuffle Between 11-13 Sept
• North Korea's Kim Dismisses Top General, Calls For War Preparations
• UK PM Sunak Weighs Following Biden On Curbing Tech Investment In China
• Oil Holds Nine-Month High As Supply Risks Offset US Stockpiles
• Chevron, Woodside In Talks To Avert Strikes At Australian LNG Operations
• China’s Internet Giants Order $5 Bln Of Nvidia Chips To Power AI Ambitions
• Samsung Announces Global Launch Of Galaxy Z Flip5, Fold5 Smartphones
• Disney's Results Mixed For Quarter Plagued By Streaming Woes, Restructuring Costs
• Disney To Raise Price On Ad-Free Disney+ To $13.99/Month Starting Sept 6
• Small UK Companies Ill-Prepared For Net Zero, Business Leaders Warn

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

Technical & Trade Views

SP500 Intraday Bullish Above Bearish Below 4520

• Below 4480 opens 4460
• Primary support is 4370
• Primary objective is 4630
• 20 Day VWAP bearish, 5 Day VWAP bullish

(Click on image to enlarge)

EURUSD Intraday Bullish Above Bearsih Below 1.1020

• Below 1.890 opens 1.0830
• Primary support is 1.830
• Primary objective is 1.13
• 20 Day VWAP bearish, 5 Day VWAP bullish

(Click on image to enlarge)

GBPUSD: Intraday Bullish Above Bearish Below 1.28

• Below 1.2750 opens 1.2650
• Primary support  is 1.26
• Primary objective 1.3850
• 20 Day VWAP bearish, 5 Day VWAP bullish

(Click on image to enlarge)

USDJPY Bullish Above Bearish Below 143

• Above 143.50 opens 145.10
• Primary resistance 145.10
• Primary objective is 136.20
• 20 Day VWAP bullish, 5 Day VWAP bullish

(Click on image to enlarge)

AUDUSD Intraday Bullish Above Bearish Below .6660

• Above .6750 opens .6820
• Primary resistance  is .6730
• Primary objective is .6466
• 20 Day VWAP bearish, 5 Day VWAP bearsih

(Click on image to enlarge)

BTCUSD Intraday Bullish Above Bearish below 30000 

• Below 29400 opens 28300
• Primary support  is 28300
• Primary objective is 32750
• 20 Day VWAP bearish, 5 Day VWAP bullish

(Click on image to enlarge)

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