European traders get in we get Turkey CPI followed by French, Italian UK and German Markit PMI’s. From Europe we also get Retail Sales. US headliners (if you can call it that) are MBA Mortgage applications and the big one ADP. Eyes will be on ADP coming in weaker given expectations are for a weaker NFP Friday (180k vs 287k prior) SCB is actually expecting even weaker at 160k. Market remains nervous on JPY with spot below 101 still (small break up higher first thing) and we also view it as prudent to rein in our short term EURUSD bullishness especially ahead of a risk event such as NFP
Asia Ranges: EUR/USD 1.1209 – 1.1226 USD/CHF 0.9640 – 0.9658
Comments: EURUSD does its usual thing – consolidate into a sub-20pip range in Asia. Critically, we hold well above the 1.1180-1.1200 zone which marked resistance yesterday and should act as support on the day, especially if USDJPY continues to trade with a heavy tone, which is our expectation (see JPY commentary below please). The level to watch on the topside on the day is now 1.1237 (100dma). In terms of data, we only see the final service PMIs from the Eurozone, which won’t rock the boat.
Asia Ranges: USD/JPY 100.75 – 101.35 EUR/JPY 112.98 – 113.62
Comments: As anticipated, USDJPY was sold aggressively after no surprises were presented from the fiscal package release, and along with a broad USD capitulation, USDJPY has printed a low of 100.68 before settling above 101 in a quiet Asian session. The risk to me remains firmly to the downside for me, and while I anticipate good demand ahead of the psychological 100 level, a continued selloff in risk sentiment (I would look at the Nikkei and JGB markets as good barometers) and a weaker USD could continue to put pressure on the pair. The technical picture remains bleak, and I would expect supply in rallies to emerge (resistance levels initially at 101.80 and 102.00.
Asia Ranges: GBP/USD 1.3315 – 1.3356 EUR/GBP 0.8404 – 0.8418
Comments: The positional squeeze happened earlier than I would have expected, and cable trades to a high of 1.3365, roughly the trendline resistance dating back to end July. I could see cable settle around this 1.32-1.34 range before tomorrow’s big event, where market is fully pricing in a 25 bps cut, and somewhat pricing an additional 50bio of QE. Anything less than this, I could see a risk of a move to at least test the resistance level of 1.3480-1.3500 again. If the BOE does decide to fulfill and exceed market expectations, 1.3000 beckons in the medium term.
Comments: Aussie had a strong move higher with bears paring back on positioning taken after the consensus RBA rate cut. There are also clearly some external factors at play with inherent demand evident in Aussie over the past few weeks. However this demand is being met by equal supply around the middle of the 76 handle and that needs to be removed to see Aussie break higher. Today the pair has traded back to around 0.7650 having reached highs of 0.7638. Some AUDJPY selling looks to be evident this morning with fingers being pointed at the overnight S&P losses so it will be important to watch that story to see if stocks come under any other further pressure this week in front of Friday’s NFP. For now expect further consolidation in Aussie between 0.7490 and 0.7650 although I am still bias for topside extensions eventually.