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Asian equity markets generally displayed resilience and upward momentum, distancing themselves from the uncertainty that had gripped Wall Street. This confidence emerged in the aftermath of a somewhat hawkish-leaning US inflation report, which revealed an uptick in the headline Consumer Price Index (CPI). However, the Core Year-on-Year (Y/Y) reading continued to slow, suggesting a nuanced economic landscape. The Nikkei 225 index was a standout performer, surging back above the 33k handle. This bullish trend was fueled by the anticipation of forthcoming economic stimulus measures, and the index remained unruffled by disappointing machinery tool order figures. Meanwhile, the Hang Seng index and the Shanghai Composite index experienced a more erratic trajectory. This volatility was triggered by a substantial liquidity drain orchestrated by the People's Bank of China (PBoC). While the energy and power sectors demonstrated strength, electric vehicle (EV) manufacturers faced downward pressure following reports of the European Commission's initiation of an anti-subsidy investigation into Chinese EVs.

The day's focal point will be the European Central Bank (ECB) policy decision scheduled for 13:15 BST. This event outcome is on a knife edge between the possibility of a tenth consecutive interest rate hike or a cautious pause. Market sentiment is leaning toward a rate hike, with a probability exceeding 65% at the time of writing. Such a move would elevate the deposit rate to 4%. This heightened conviction followed a Reuters report on Tuesday, which forecasted that the ECB's new projections would indicate Eurozone inflation remaining above 3% in 2024. This revised projection primarily stemmed from elevated oil prices. However, policymakers face a delicate balancing act. They have to factor in the anticipated downgrades to the Eurozone's economic growth forecast for the current year and the next. Assuming that the weaker growth was attributed to demand rather than structural issues, it is expected to alleviate inflationary pressures in the long term. Consequently, the forecast for 2025 inflation might remain relatively unchanged from the previous estimate of 2.2%. This poses a conundrum for policymakers, as they confront a more stagflationary scenario than initially envisioned. The pivotal question will be whether they prioritize addressing higher near-term inflation or bolstering economic growth. The Reuters report appears to tip the scales toward a rate hike. This will be especially significant given that inflation has persistently exceeded the target, misaligning with the ECB's primary mandate for price stability.

Looking beyond Europe, some crucial data releases are scheduled Stateside. Foremost among them will be the release of August retail sales figures, with an expected increase of 0.3% compared to July's 0.7%. This anticipated softer outcome is largely attributed to weakened car sales. Additionally, Producer Price Inflation (PPI) and weekly jobless claims data are set to be unveiled. PPI is expected to show a headline rate still creeping higher while moderation is anticipated to continue in the core reading. Jobless claims had descended to their lowest point since February last week, indicative of a relatively tight labor market.

Turning to the overnight focus on early Friday, China was poised to release a raft of data encompassing retail sales, industrial production, and the unemployment rate. The central bank of China was anticipated to maintain its one-year medium-term lending facility rate unchanged, following a reduction to 2.5% in August.
 

FX Positioning & Sentiment 

The number of bets on the euro rising has been reduced from $25 billion to $18 billion. Despite this reduction, long positions on the euro still exert a significant constraint on its potential to appreciate in value. These bets have been trimmed, pushing the EUR/USD currency pair down from its peak in July at 1.1276 to a low in September at 1.0686. This represents a notable shift from the relatively stable trading range of approximately 1.05 to 1.10 that prevailed before the month of July. Despite these fluctuations, the EUR/USD exchange rate is currently in a favorable position to sustain its upward trajectory. However, it's worth noting that the expected peak in European Central Bank (ECB) interest rates may act as a limiting factor, potentially holding back the euro's gains in the future.
 

CFTC Data As Of 08-09-23

• USD net USD G10 short -$3.4bn in Aug 30-Sep 5 period, $IDX +1.17% in period
• Fed high for longer versus whiff of steady ECB, less austere BoE lifts USD
• EUR$ -1.42% in period, specs -10,448 contracts now +136,231
• Sellers overwhelm bottom-fishers as king USD reigns, pair flat since Tuesday
• $JPY +1.23% in period, specs +1,337 contracts now -97,136
• Longs sell USD ahead of expected intervention area near 150
• GBP$ -0.68% in period, specs sell 2,017 contracts now long 46,384
• Traders sense dovish BoE shift, high BoE rate path tempers GBP weakness
• CAD & AUD shorts rise 9k & 13k respectively amid weak China growth view
• BTC -6.79% in period, specs buy 532 contracts long grows to 2,039 contracts (Source: Reuters)
   

FX Options Expiries For 10am New York Cut 

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

• EUR/USD: 1.0730 (420M), 1.0755 (697M)
• 1.0765-75 (471M), 1.0825 (475M), 1.0845-50 (659M)
• 1.0855-60 (481M)
• USD/JPY: 144.05 (389M), 146.69-75 (275M), 147.50 (252M)
• USD/CHF: 0.8850 (251M). EUR/CHF: 0.9450 (375M)
• 0.9500 (225M), 0.9550 (300M)
• GBP/USD: 1.2500 (214M). EUR/GBP: 0.8750 (386M)
• AUD/USD: 0.6315 (260M), 0.6355 (220M), 0.6400-05 (538M)
• 0.6500 (445M), 0.6525-35 (1.18BLN)
   

Overnight Newswire Updates of Note

• Australia’s Job Gains Show Economy Absorbing RBA Rate Hikes
• US Has $89 Bln Monthly Budget Surplus On Student-Loan Ruling
• Japan EconMin Shindo: To Use All Possible Policy Measures To Support Economy
• China Asks Big Banks To Stagger And Adjust Dollar Purchases - Sources
• China's Nationwide Property Tax Plan Set For Further Delay
• N.Korea’s Kim Vows Full Support For Moscow At A Summit With Putin
• Meloni Sticks By Italian Bank Windfall Tax Despite ECB Criticism
• Country Garden Faces Another Yuan-Bond Vote Deadline In Hours
• Australian LNG Workers Escalate Strike Action At Chevron Plants
• Arm Prices IPO At $51 Per Share, At Top Of Expected Range
• China Hits Back At European Probe Of Electric Car Subsidies
• China Says It Has Not Imposed Ban Against Apple's iPhone
• UAW Chief: Offers From Detroit Three Are Inadequate; Ready To Strike

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

Technical & Trade Views

SP500 Bias: Bullish Above Bearish Below 4500

• Above 4500 opens 4540
• Primary resistance  is 4550
• Primary objective is 4266
• 20 Day VWAP bullish, 5 Day VWAP bullish

(Click on image to enlarge)

EURUSD Bias: Bullish Above Bearsih Below 1.0810

• Above 1.860 opens 1.0945
• Primary resistance is 1.1066
• Primary objective is 1.0660
• 20 Day VWAP bearish, 5 Day VWAP bullish

(Click on image to enlarge)

GBPUSD Bias: Bullish Above Bearish Below 1.2560

• Above 1.2650 opens 1.27
• Primary resistance  is 1.2750
• Primary objective 1.23
• 20 Day VWAP bearish, 5 Day VWAP bearish

(Click on image to enlarge)

USDJPY Bias: Bullish Above Bearish Below 146.50

• Below 146 opens 144.90
• Primary support 144.50
• Primary objective is 150
• 20 Day VWAP bullish, 5 Day VWAP bullish

(Click on image to enlarge)

AUDUSD Bias: Bullish Above Bearish Below .6450

• Above .6475 opens .6525
• Primary resistance  is .6620
• Primary objective is .6320
• 20 Day VWAP bearish, 5 Day VWAP bullish

(Click on image to enlarge)

BTCUSD Bias: Bullish Above Bearish below 26175

• Above 28200 opens 30000
• Primary resistance  is 28175
• Primary objective is 23300
• 20 Day VWAP bearish, 5 Day VWAP bullish

(Click on image to enlarge)

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