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Daily Pivots: (S1) 1.3733; (P) 1.3766; (R1) 1.3800; More...

No change in GBP/USD's outlook and further rise is in favor with 1.3678 minor support intact. Rebound from 1.3601 would target 1.3982 resistance first. Decisive break there will pave the way back to retest 1.4248 high. On the downside, break of 1.3678 will turn bias back to the downside for 1.3570 low, and possibly further to 1.3482 key resistance turned support.

In the bigger picture, current development argues that rise from 1.1409 (2020 low) has completed at 1.4248, after failing 1.4376 resistance. Fall from there could either be correcting the rise from 1.1409, or starting another falling leg inside long term sideway pattern. In either case, sustained break of 1.3482 resistance turned support will target 38.2% retracement of 1.1409 to 1.4248 at 1.3164 first. Break there will pave the way to 61.8% retracement at 1.2493.

Daily Pivots: (S1) 1.1803; (P) 1.1830; (R1) 1.1866; More...

With 1.1778 minor support intact, intraday bias in EUR/USD remains mildly on the upside. Rise from 1.1663 short term bottom is on track to 1.1907 resistance first. Decisive break there will indicate that fall from 1.2265, as well as the consolidation pattern from 1.2348, have completed. Near term outlook will be turned bullish for 1.2265/2348 resistance. On the downside, break of 1.1778 resistance turned support will turn bias back to the downside for 1.1602/63 support zone instead.

In the bigger picture, rise from 1.0635 is seen as the third leg of the pattern from 1.0339 (2017 low). Further rally remains in favors long as 1.1602 support holds, to cluster resistance at 1.2555 next, (38.2% retracement of 1.6039 to 1.0339 at 1.2516). However sustained break of 1.1602 will argue that the rise from 1.0635 is over, and turn medium term outlook bearish again. Deeper fall would be seen to 61.8% retracement of 1.0635 to 1.2348 at 1.1289 and below.

Risk-on sentiment firms up slightly after better than expected jobless claims from the US. Dollar, Yen and Swiss Franc continue to trade as the weakest ones. On the other hand, New Zealand and Australian Dollars are the strongest. But the moves in risk markets are limited so far. Investors could turn cautious quickly again and stay calm before tomorrow's non-farm payroll report.

Technically, NZD/USD's break of 0.7087 resistance suggests that corrective pattern from 0.7463 could have completed with three waves down to 0.6804 already. Stronger rise would be seen back to 0.7315 resistance. Break will likely resume larger up trend from 0.5467 through 0.7463 high. We'll firstly see if NZD/USD's move could extend into next week. Secondly, we'll pay attention to whether AUD/USD would follow and break through 0.7425 resistance.

In Europe, at the time of writing, FTSE is up 0.01%. DAX is up 0.15%. CAC is up 0.13%. Germany 10-year yield is down -0.0203 at -0.390, staying above -0.4 handle. Earlier in Asia, Nikkei rose 0.33%. Hong Kong HSI rose 0.24%. China Shanghai SSE rose 0.84%. Singapore Strait Times rose 0.03%. Japan 10-year JGB yield rose 0.0039 to 0.035.

US initial jobless claims dropped to 340k, continuing claims dropped to 2.75m

US initial jobless claims dropped -14k to 340k in the week ending August 28, better than expectation of 351k. That's the lowest level since march 14, 2020. Four-week moving average of initial claims dropped -12k to 355k, lowest since March 2020 too.

Continuing claims dropped -160k to 2748k in the week ending August 21, lowest since March 14, 2020. Four-week moving average of continuing claims dropped -58k to 2855k, lowest since March 21, 2020.

Also from US, trade deficit narrowed to USD -70.1B in July versus expectation of USD -74.5B. Non-farm productivity was revised to 2.1% in Q2, unit labor cost at 1.3%.

From Canada, building permits dropped -3.9% mom in July versus expectation of 1.5% mom. Trade surplus came in at CAD 0.8B versus expectation of CAD 1.7B.

Eurozone PPI at 2.3% mom, 12.1% yoy in Jul; EU up 2.2% mom, 12.2% yoy

Eurozone PPI came in at 2.3% mom, 12.1% yoy in July, well above expectation of 1.2% mom, 10.9% yoy. For the month, industrial producer prices increased by 5.7% in the energy sector, by 1.9% for intermediate goods, by 0.7% for durable consumer goods, by 0.5% for capital goods and by 0.1% for non-durable consumer goods. Prices in total industry excluding energy increased by 1.0%.

EU PPI came in at 2.2% mom, 12.2% yoy. For the month, industrial producer prices increased in all Member States except Malta, where they remained stable. The highest increases were recorded in Ireland (+20.6%), Estonia (+6.4%) and Belgium (+4.2%).

Swiss GDP grew 1.8% qoq in Q2, retail sales dropped -2.6% yoy in Jul

Swiss GDP grew 1.8% qoq in Q2, slightly below expectation of 1.9% qoq. Total GDP was only -0.5% below the pre-crisis level seen in Q4 2019. Looking at some details, from production approach, manufacturing grew 0.9%, trade rose 4.8%, accommodation and food rose 48.9%, arts, entertainment and recreation rose 52.9%. From expenditure approach, private consumption rose 4.1%, government consumption rose 5.5%.

Also from Swiss, real retail sales dropped -2.6% yoy in July, much worse than expectation of 0.2% yoy. CPI came in at 0.2% mom, 0.9% yoy in August, above expectation of 0.1% mom, 0.8% yoy.

Australia trade surplus hit record AUD 12.12B, as exports to China rose

Australia goods and services exports rose 5% mom in July to AUD 45.94B. The strong rise is exports was based on strong Asian demand for LNG and thermal coal, combined with sharply higher prices for iron ore. Exports to China also rose to record AUD 19.4B. Goods and services imports rose 3% mom to AUD 33.83B, due to sharp increase in parts and accessories for telecommunications equipment.

Trade surplus widened to AUD 12.12B, above expectation of AUD 10.1B., hitting a new record.

New Zealand terms of trade rose 3.3% in Q2 as export prices surged

New Zealand merchandise terms of trade rose 3.3% in Q2, well above expectation of 0.3%. Export prices for goods rose 8.3% while import prices rose 4.8%. Export volume for goods rose 2.9% while import volumes rose 4.4%. Export values rose 9.2% and import values rose 4.6%. Services terms of trade dropped -8.5%. Services export prices fell -1.6% while import prices rose 7.7%.

Terms of trade measures New Zealand's purchasing power for import goods, based on the prices it receives for exports. An increase in terms of trade means that New Zealand can buy more import goods for the same quantity of exports.

BoJ Kataoka: BoJ must strengthen monetary easing

BoJ board member Goushi Kataoka, a known persistent dove, warned that the Japan economy remained in a "severe state". The economy is heading toward recovery but "not fast enough.

He added that risks to the outlook are skewed to the downside. In particular, "risks to consumption are heightening" due to surge in Delta infections. "There's a good chance the impact of the pandemic may last longer than expected," he added.

Kataoka also continued his push for more aggressive monetary policy easing. "Personally, I believe the BoJ must strengthen monetary easing," he said, as inflation would remain distant from the 2% target for years.

Looking ahead

Swiss retail sales, CPI and GDP will be released in European session while Eurozone will release PPI. Canada will release building permits and trade balance. US will release jobless claims, trade balance, factory orders and non-farm productivity.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1803; (P) 1.1830; (R1) 1.1866; More...

With 1.1778 minor support intact, intraday bias in EUR/USD remains mildly on the upside. Rise from 1.1663 short term bottom is on track to 1.1907 resistance first. Decisive break there will indicate that fall from 1.2265, as well as the consolidation pattern from 1.2348, have completed. Near term outlook will be turned bullish for 1.2265/2348 resistance. On the downside, break of 1.1778 resistance turned support will turn bias back to the downside for 1.1602/63 support zone instead.

In the bigger picture, rise from 1.0635 is seen as the third leg of the pattern from 1.0339 (2017 low). Further rally remains in favors long as 1.1602 support holds, to cluster resistance at 1.2555 next, (38.2% retracement of 1.6039 to 1.0339 at 1.2516). However sustained break of 1.1602 will argue that the rise from 1.0635 is over, and turn medium term outlook bearish again. Deeper fall would be seen to 61.8% retracement of 1.0635 to 1.2348 at 1.1289 and below.

Economic Indicators Update

Can it break back into bullish territory?

The dollar has come under pressure over the last couple of weeks as the economic data has necessitated a more dovish line from the Federal Reserve .

The result is that, despite breaking below the 200/233-day SMA and into bearish territory, the pair has failed to gain much traction to the downside.

We’ll soon see whether that failure is temporary or more prolonged, with the pair now testing the upper end of that band from below. This also coincides with the 55-day SMA and the 38.2% retracement level of the June highs to July lows.

On the 4-hour chart, this also coincides with the 200/233-period SMA band, so it’s no surprise the pair is seeing so much resistance around this area.

The rally over the last couple of weeks is seeing momentum slow, as evidenced by the rising wedge – a bearish pattern , and the stochastic and MACD on the 4-hour chart, where divergences are clear.

That would suggest a continuation of the move lower is more likely but also that a break above 1.38 could trigger quite a sharp and bullish move higher, with stops above here potentially exacerbating any move.

With Fed speakers and US data today and the US jobs report tomorrow, we may not have to wait long to see which it will be.

US initial jobless claims dropped -14k to 340k in the week ending August 28, better than expectation of 351k. That's the lowest level since march 14, 2020. Four-week moving average of initial claims dropped -12k to 355k, lowest since March 2020 too.

Continuing claims dropped -160k to 2748k in the week ending August 21, lowest since March 14, 2020. Four-week moving average of continuing claims dropped -58k to 2855k, lowest since March 21, 2020.

Full release here.

Gold has been holding its own relatively well so far in the week, although it will face a key test on Friday when the latest US labour market report will be published. The dollar has remained largely on the back foot, owing to concerns over the impact of the delta variant of the virus spreading in the US, mixed-bag US data and improvement in Eurozone data, boosting the EUR/USD (and in turn weighing on the Dollar Index). Bond yields have not moved much either as investors are continuing to get bombarded by mixed messages from central bank officials, with the Fed Chair Jay Powell last week watering down the Fed’s hawkish tone a little.

Thanks to the above developments, gold has been shining more brightly these days, with the metal recovering impressively after that flash crash we saw in early August:

After breaking its bearish trend line, gold has started to build a base around the pivotal $1810 level, which was previously resistance and where we have the 200-day average converging. This is clearly encouraging signs for the bulls. For as long as gold holds its own above this area, this would keep them happy. Next up is the pool of liquidity resting above old resistance circa $1830 area, which could be reclaimed in the next day or two, especially if the US jobs report is not too strong. Thereafter is the $1850 resistance level.

But if the US dollar reverses its trend, say, on the back of a strong US jobs report or otherwise, then gold could weaken again. Still, the bias would only turn bearish if and when it creates a new lower low. Currently that level is at around $1775, which is the line in the sand for me in so far as the short-term bullish outlook is concerned.

Notes/Observations

• Lackluster US and Chinese economic data fuel concerns about the global economic recovery stalling (recent miss in Aug ADP employment data opened the door for the risk of a weak US nonfarm payrolls report on Friday).

Asia

• South Korea Q2 Final GDP data confirmed its fastest annual pace in 10-years (Y/Y: 5.9%e v 5.9% prelim).
• South Korea Aug CPI data registered its 5th consecutive month above target and highest since 2012 (Y/Y: 2.6% v 2.4%e).
• Australia July Trade Balance registered a record high (A$12.1B v A$10.0Be).
• BOJ Board Member Kataoka [dovish, dissenter] stated that needed to watch downside risks to global economy; BOJ must strengthen forward guidance on interest rate targets, stronger easing needed.
• Japan LDP Leadership Candidate Kishida stated that must compile and economic stimulus package. Needed to swiftly carry out econ measures worth 'tens of trillion' of yen.

Coronavirus

• World Health Organization (WHO) tracking new COVID variant called MU, warned it could be more resistant to vaccines.
• Japan considering extending COVID emergency by 2 weeks past the Sept 12th planned lifting.

Americas

• Fed's Bostic (FOMC voter, hawk) concerned about a wave of evictions with the moratorium ending; A surge would have a negative impact on recovery.

Energy

• OPEC+ producers confirmed its had agreed to keep production road map of 400K bpd capacity increase in Oct.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

• Indices [Stoxx600 +0.33% at 474.68, FTSE 0.00% at 7,149.69, DAX +0.22% at 15,859.50 , CAC-40 +0.25% at 6,775.30, IBEX-35 +0.11% at 9,003.00, FTSE MIB +0.17% at 26,225.50 , SMI +0.25% at 12,464.42, S&P 500 Futures +0.19%].
• Market Focal Points/Key Themes: European indices open mixed but later advanced to trade modestly positive across the board; better performing sectors include industrials and technology; While materials and consumer discretionary among underperformers; Energy under pressure following OPEC resolution; Stellantis acquires First Financial Services; Lagardere divests stakes in restructuring program; SOBI receives takeover offer from private equity; Earnings expected during the upcoming US session include Hormel and Ciena.

Equities

• Consumer discretionary: JD Sports Fashion [JD.UK] +1% (UK CMA probe).
• Financials: CMC Markets [CMCX.UK] -28% (trading update).
• Healthcare: SOBI Swedish Orphan Biovitrum [SOBI.SE] +25% (offer).
• Industrials: Melrose [MRO.UK] +5% (earnings), Barratt Developments [BDEV.UK] -1% (earnings).

Speakers

• German VDMA Engineering association: July Machinery Orders +37% y/y.
• Philippines Central Bank (BSP) Gov Diokno noted that manageable inflation provided latitude for policy support and that conventional instruments were far from fully utilized. Sustaining recovery and preventing permanent economic scarring required heavy lifting from fiscal policy.
• EMA and European Center for Disease Prevention and Control (ECDC) technical report assessed data on booster shots and saw no urgent need for the administration of booster doses of vaccines to fully vaccinated individuals.
• Russia Energy Ministry: No further need for gasoline export ban at this time. Nord Stream 2 gas pipeline to probably start this year.

Currencies/Fixed Income

• USD remained on the defensive since last week’s Jackson Hole symposium. The recent miss in Aug ADP employment data opened the door for the risk of a weak US nonfarm payrolls report on Friday.
• EUR/USD at multi-week highs around 1.1850 area aided by recent ECB speak that hinted at a possible reduction in monetary stimulus. Higher yields in Europe following the sharp rise in Euro Zone CPI data also contributed to Euro’s upside price action. Key resistance in the pair remains the psychological 1.20 level.

Economic data

• (CH) Swiss Aug CPI M/M: 0.2% v 0.1%e; Y/Y: 0.9% v 0.7%e; CPI Core Y/Y: 0.4% v 0.3%e.
• (CH) Swiss Aug CPI EU Harmonized M/M: 0.2% v 0.1% prior; Y/Y: 0.8% v 0.5% prior.
• (CH) Swiss July Real Retail Sales Y/Y: -2.6% v +0.1% prior.
• (ES)) Spain Aug Net Unemployment Change: -82.6K v -197.8K prior.
• (CH) Swiss Q2 GDP Q/Q:1.8 % v 1.9%e; Y/Y: 7.7% v 8.9%e.
• (HU) Hungary July PPI M/M: % v 1.0% prior; Y/Y: 14.8% v 11.6% prior.
• (BR) Brazil Aug FIPE CPI (Sao Paulo) M/M: 1.4% v 1.4%e.
• (EU) Euro Zone July PPI M/M: 2.3% v 1.8%e; Y/Y: 12.1% v 11.1%e.
• (IS) Iceland Q2 Current Account Balance (ISK): -31.1B v -22.8B prior.

Fixed income Issuance

• (ES) Spain Debt Agency (Tesoro) sold total €3.729B vs. €3.0-4.0B in 2027, 2028 and 2031 bonds.
• Sold €809M in 1.5% Apr 2027 SPGB; Avg yield: -0.288% v -0.132% prior; Bid-to-cover: 2.51x v 2.34x prior.
• Sold €1.324B in 0.00% Jan 2028 SPGB bonds; Avg yield: -0.133% v -0.082% prior; Bid-to-cover: 2.10x v 1.63x prior.
• Sold €1.602B in 0.50% Oct 2031 SPGB bonds; Avg Yield: 0.309% v 0.199% prior; bid-to-cover: 1.69x v 1.30x prior.
• (ES) Spain Debt Agency (Tesoro) sold €415M vs. €250-750M indicated range in 0.70% Nov 2033 inflation-linked bonds (SPGBi); Real Yield: -1.025% v -0.739% prior; Bid-to-cover: 1.88x v 1.77x prior.
• (FR) France Debt Agency (AFT) sold total €10.358B vs. €10.0-11,0B indicated range in 2031, 2044 and 2050 bonds.
• Sold €6.315B in 0.0% Nov 2031 Oat; Avg Yield: -0.05% v +0.13% prior; Bid-to-cover: 1.81x v 2.14x prior (July 1st 2021).
• Sold €2.122B in 0.50% Jun 2044 Oat; Avg Yield: 0.55% v 0.74% prior; bid-to-cover: 2.14x v 1.79x prior (Jun 3rd 2021).
• Sold €1.921B in 1.50% May 2050 Oat; Avg Yield: 0.70% v 0.27% prior; Bid-to-cover: 2.02x v 1.61x prior (Nov 5th 2020).
• (SE) Sweden sold total SEK1.25B vs. SEK1.25B indicated in I/L 2027 and 2039 Bonds.

Looking Ahead

• 05:25 (EU) Daily ECB Liquidity Stats.
• 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills.
• 06:00 (RO) Romania to sell 3.25% 2026 bonds.
• 06:00 (RO) Romania to sell RON600M in 6-month bills.
• 06:45 (US) Daily Libor Fixing.
• 07:00 (ZA) South Africa July Electricity Production Y/Y: No est v 3.2% prior; Electricity Consumption Y/Y: No est v 2.1% prior.
• 07:00 (MX) Mexico Aug Consumer Confidence: No est v 44.3 prior.
• 07:00 (MX) Mexico July Leading Indicators M/M: No est v 0.20 prior.
• 07:00 (MX) Mexico Aug Vehicle Domestic Sales: No est v 82.2K prior.
• 07:30 (US) Aug Challenger Job Cuts: No est v -18.9K prior; Y/Y: No est v -92.8% prior.
• 08:00 (BR) Brazil July Industrial Production M/M: -0.7%e v 0.0% prior; Y/Y: 1.9%e v 12.0% prior.
• 08:00 (UK) Daily Baltic Dry Bulk Index.
• 08:30 (US) Q2 Final Nonfarm Productivity: 2.4%e v 2.3% prelim; Unit Labor Costs: 1.0%e v 1.0% prelim.
• 08:30 (US) Initial Jobless Claims: 345Ke v 353K prior; Continuing Claims: 2.80Me v 2.862M prior.
• 08:30 (US) July Trade Balance: -$71.0Be v -$75.7B prior.
• 08:30 (CA) Canada July Int'l Merchandise Trade (CAD): 1.7Be v 3.2B prior.
• 08:30 (CA) Canada July Building Permits M/M: 2.0%e v 6.9% prior.
• 08:30 (US) Weekly USDA Net Export Sales.
• 08:30 (SE) Sweden Central bank (Riksbank) Gov Ingves.
• 09:00 (RU) Russia Gold and Forex Reserve w/e Aug 27th: No est v $595.6B prior.
• 09:00 (SG) Singapore Aug Purchasing Managers Index: 50.9e v 51.0 prior; Electronics Sector Index: No est v 50.8 prior.
• 09:45 (UK) BOE to buy £1.147B in APF Gilt purchase operation (3-7 years);.
• 10:00 (US) July Factory Orders: 0.3%e v 1.5% prior; Factory Orders (ex-transportation): No est v 1.4% prior.
• 10:00 (US) July Final Durable Goods Orders: -0.1%e v -0.1% prelim; Durables (ex-transportation) No est v 0.7% prelim; Capital Goods Orders (non-defense/ex-aircraft): No est v 0.0% prelim; Capital Goods Shipments (non-defense/ex-aircraft): No est v 1.0% prelim.
• 10:30 (US) Weekly EIA Natural Gas Inventories.
• 11:00 (DK) Denmark Aug Foreign Reserves (DKK): No est v 458.6B prior.
• 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.
• 17:00 (KR) South Korea Aug Foreign Reserves: No est v $458.7B prior.
• 19:00 (AU) Australia Aug Final PMI Services: No est v 43.3 prelim; PMI Composite: No est v 43.5 prelim.
• 20:01 (IE) Ireland Aug PMI Services: No est v 66.6 prior; PMI Composite: No est v 65.0 prior.
• 20:30 (JP) Japan Aug Final PMI Services: No est v 43.5 prelim; PMI Composite: No est v 45.9 prelim.
• 20:30 (SG) Singapore Aug PMI (whole economy): No est v 56.7 prior.
• 20:30 (HK) Hong Kong Aug PMI (whole economy): No est v 51.3 prior.
• 21:30 (AU) Australia July Final Retail Sales M/M: -2.0%e v -2.7% prelim.
• 21:45 (CN) China Aug Caixin PMI Services: 52.0e v 54.9 prior; PMI Composite: No est v 53.1 prior.
• 23:30 (JP) Japan to sell 3-Month Bills.

Oil falls on OPEC+

Oil prices fell overnight as OPEC+ took less than 30 minutes to go ahead with adding scheduled 400,000 bpd of production to global markets. Additionally, the group revised their consumption forecasts to swing to a production surplus of 2.5 million bpd in 2022. Oil prices fell initially but were salvaged later in the session after official US Crude Inventory data recorded a surprise 7.0 million-barrel fall.

Brent crude finished the overnight session 0.55% lower at USD 71.30, and WTI closed 0.40% lower at USD 68.25 a barrel, having spiked lower to near USD 67.00 intraday. The noise of the overnight session has not been repeated in Asia, where both contracts have recorded a modest 0.15% recovery. Brent crude is trading at USD 71.40 and WTI at USD 68.35 a barrel.

Both contracts are flirting with support at their 100-DMAs, with WTI closing below it. The inability to maintain support at USD 72.00 and USD 68.00, respectively, suggests that the downside remains the path of least resistance now. It is also notable that the giant falls in US crude inventories and the production closures from Hurricane Ida have had no meaningful, supportive impacts on oil prices. Therefore, Brent crude could test USD 70.00 and WTI USD 67.00 a barrel ahead of tomorrow’s US jobs data.

Gold is unchanged once again

Gold finished another session unchanged for the 3rd day in a row, closing at USD 1814.00 an ounce overnight. It continues to trade aimlessly in a narrow range in Asia, easing 0.15% to USD 1811.60 an ounce.

For now, gold appears to be off investors’ radars, but my concerns that upward momentum is stalling are increasing. After the V-shaped recovery last week, gold has been unable to break out of the confines of its 100 and 200-DMAs, today at USD 1814.50 and USD 1809.40 an ounce, respectively. Notably, it has failed to find any upward momentum from the US dollar retreat this week, which is a significant warning sign of a loss of upward momentum.

Gold is vulnerable to a potentially sharp fall through USD 1800.00 an ounce ahead of the US data tomorrow, which could flush out fast-money longs, potentially extending losses to USD 1780.00 an ounce. Gold has resistance at USD 1820.00 and then a formidable resistance zone between USD 1830.00 and USD 1835.00 an ounce.

Dollar dips as tapering concerns ease

The US dollar fell once again overnight as hawkish inflation rhetoric from Europe lifted the euro, and US ADP and ISM PMI data reinforced expectations of a softer jobs print from the US tomorrow, adding credence to Jerome Powell’s apparently dovish Fed tapering outlook. The dollar index fell by 0.15% to 92.50, where it remains in Asia today. That hawkish euro-inflation lifted EUR/USD by 0.25% to 1.1840, and a rally through 1.1860 targets 1.1900. GBP/USD was dragged higher to 1.3775, but it once again failed at 1.3800. GBP/USD needs to overcome the 50 and 200-day moving averages (DMAs) at 1.3810 to swing the technical picture decisively bullish.

With US tapering fears receding, risk sentiment bell weathers, the Australian and New Zealand dollars outperformed. AUD/USD rose 0.70% to 0.7365 as of this morning and remains on track to test 0.7400 ahead of the US data. NZD/USD has risen by 0.30% to 0.7065 but must overcome the 100 and 200-DMAs at 0.7085 and 0.7115 to maintain upward momentum. A soft US Non-Farm Payrolls print tomorrow night should greenlight 200 point-plus rallies by both next week.

With USD/CNY holding steady once again at 6.4620, regional Asian currencies have been left to their own devices today. USD/THB and USD/KRW are 0.40% higher, with the rest of USD/Asia slightly higher for the session. After rallying powerfully for the last week or so, it looks like investors are trimming Asia FX long positioning into the US data. A softer Non-Farm print tomorrow (<750K) should allow Asian FX to resume its upward trajectory. With the US ADP and PMI data overnight signalling, employment remains subdued. Although not for employers not trying hard enough to hire workers, the market has decisively shifted towards the US Non-Farms coming in on the soft side of 750,000 jobs. That reinforces the market's preferred narrative of a later and slower taper, thus keeping the buy-everything rally's momentum going. Therefore, a surprise print above 900k is likely to have a greater impact. We could see a squeeze of short US dollar positions across both the DM and EM space in that scenario.

Asian equities mixed ahead of US data tomorrow

Asian markets are having a mixed day, with a bias to the downside, as regional investors digest the latest Chinese government clampdown of the day and look to reduce exposure into tomorrow’s US Non-Farm Payroll release. Overnight, there was also a sense of positioning for safety as US technology outperformed in what was otherwise a slightly negative session after the US ADP and ISM PMI data.

The S&P 500 finished just 0.03% higher, while the Nasdaq rose by 0.33%, with the Dow Jones edging 0.13% lower. Futures on all three are slightly negative in directionless Asian trading.

In Asia, the Nikkei 225 has risen 0.30% after BoJ Board member Kataoka said the Japan recovery was not fast enough and the BoJ could ease further. In South Korea, the Kospi has fallen by 1.05% after higher than expected inflation data raised the spectre of further central bank tightening.

China’s summoning of 11 ride-hailing firms for a meeting has not impacted the main Shanghai Composite index, which is 0.50% higher, but has seen the CSI 300 fall by 0.33% with Hong Kong treading water, up by just 0.15% today. Singapore’s Straits Times has edged 0.17% lower, with Taipei down 0.55%, Kuala Lumpur easing by 0.14%, and Bangkok unchanged.

Australian markets have taken fright at warnings by the Australian medical establishment that they are not ready for a deluge of Covid-19 cases once the economy reopens. Fears that today Q2 Balance of Trade will be a high-water market for the economy, much of it in lockdown in Q3, also seem to be weighing heavily. The ASX 200 has fallen by 0.80%, with the All Ordinaries lower by 0.60%.

Equity markets appear to be reacting to a combination of local headlines and pre-US-data positioning adjustments on a slow news day. Assuming the same pattern of behaviours, I expect European markets to open on the heavier side, especially as inflation-fighting rhetoric is getting louder from the ivory towers of central bank intelligentsia.