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Asian equity markets faced downward pressure, influenced by the recent tech-related declines on Wall Street, driven by post-Apple event disappointment. Additionally, market participants exhibited caution as they awaited the release of upcoming U.S. Consumer Price Index (CPI) data, which is of significant interest to global financial markets. The Nikkei 225 index in Japan experienced fluctuations, initially swinging between gains and losses. Early gains were observed following mixed Producer Price Index (PPI) data and an improvement in the BSI (Business Survey Index) large industry surveys. However, the index eventually slipped, with money markets now pricing in the Bank of Japan (BoJ) to exit negative interest rates in January, as opposed to the previous expectation of an exit in September of the following year. The Hang Seng index in Hong Kong and the Shanghai Composite index in mainland China initially held their ground, buoyed by strength in energy sector stocks and positive developments as some cities eased restrictions on the real estate sector. However, both indices later succumbed to the prevailing negative sentiment.

UK GDP data for July revealed a monthly decline in economic activity amounting to 0.5%. This drop was larger than what was generally expected. Several sectors, including industrial production, construction, and services, experienced declines during the month. While this decline may be partially attributed to the stronger-than-expected performance in June and the impact of temporary factors like adverse weather and strike actions, it signifies a weak start to the third quarter. Achieving the Bank of England's August forecast of 0.4% quarterly growth in GDP will be challenging given these circumstances. When making the next week's interest rate decision, BoE policymakers will need to weigh this against other signs pointing to a potential slowdown in economic growth.

In anticipation of tomorrow's European Central Bank policy update, July's Eurozone industrial production data is expected to reveal a 0.9% monthly decline. This would mark the first decrease in four months and is another indication that economic activity in the region had a sluggish start to the third quarter. The ECB will need to consider this data when making its latest interest rate decision, while also keeping in mind the persistently elevated inflation levels in the Eurozone.

Stateside the August US Consumer Price Index (CPI) report, set to be released this afternoon, holds significance as it precedes the Federal Reserve's decision on US interest rates next week. Despite the likely increase in headline inflation due to the recent surge in oil prices, the Fed is expected to keep interest rates unchanged, marking the second "pause" this year. Acceleration in gasoline prices will lead to a 0.6% monthly price increase, pushing annual inflation to a three-month high of 3.7%, up from 3.3% in July. A more reassuring aspect for the Fed is that core inflation is expected to decrease further to 4.4% from the previous 4.7%. If core inflation does indeed continue to decline, it should allow Fed policymakers to overlook the rise in the headline rate and maintain their stance on interest rates. Nevertheless, they are likely to continue emphasising potential inflation risks.
 

FX Positioning & Sentiment 

The USD/CNH currency pair experienced a decline as China implemented measures to tighten liquidity in the offshore yuan market.The USD/CNH exchange rate dropped from its opening level of 7.3011 to 7.2903, indicating a weakening of the U.S. dollar against the Chinese yuan. This decline in the exchange rate may lead to a potential test of the level at 7.2777, which marks the entrance point of a downtrend channel in technical analysis. A close below this level on Wednesday could establish a bearish technical bias for the USD/CNH pair, suggesting a possible strengthening of the Chinese yuan against the U.S. dollar. Concurrently, the offshore yuan saw an increase in its value as China implemented measures to tighten liquidity in the market. The People's Bank of China (PBOC) announced its intentions to ramp up the sale of yuan-denominated bills in Hong Kong, contributing to the liquidity tightening measures. Overnight CNH funding rates surged to their highest levels since April 2022, underscoring the heightened demand for yuan liquidity and its impact on currency markets.
 

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

• European Markets Set For Negative Open Ahead Of US Inflation Data
• Japan PPI (Y/Y) Aug: 3.2% (est 3.3%; prev R 3.4%)
• BoJ Watchers Bring Forward Rate Hike Forecasts On Ueda’s Remarks
• China Extends Tariff Exemption On Certain US Goods
• RBNZ's Silk: Decisions From Liquidity Policy Review To Come By End-2023
• N.Korean Leader: Russia Trip 'Clear Manifestation' Of Prioritising Ties With Russia
• N.Korea Fired Ballistic Missile, Likely Landed Outside Japan’s EEZ
• ECB's Crucial 2024 Projection To Put Inflation Above 3%, Source Says
• Senate Republicans Align With Democrats To Avoid Shutdown
• Country Garden Wins Vote To Extend Repayment Of Seven Yuan Bonds
• Arm Is Expected To Price IPO At Top End Of Range Or Higher
• Honda, BMW And Ford Seek To Optimise EV Grid With New Venture
• Apple Raises iPhone 15 Pro Max Price To $1,199
• UAW May Strike At Small Number Of Factories If It Can’t Reach Deals
• Amazon To Boost Pay For Contracted Delivery Drivers
• T-Mobile To Buy Up To $3.3 Bln Of Airwaves From Comcast

(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 bearish

(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 bearish

(Click on image to enlarge)

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