USD/JPY drifts to support ahead of FOMC: Asian Open – 26th July 2023

Market Summary:

• Asian indices were higher yesterday with China leading the way following reports of more stimulus from Beijing.
• A weaker US dollar and stimulus hopes helped send WTI crude oil to a 3-month high and within a day’s trading range of $80
• German business sentiment continue to deteriorate according the Ifo report, with business conditions falling to a 29-month low whilst the current climate and expectations touched an 8month low. EUR/USD was lower for a seventh day although volatility was lower, likely as weak PMI data the day prior foreshadowed expectations for the Ifo report.
• Google rallied over 8% during afterhours trade thanks to reporting higher than expected and announcing current CFO Porat to transition to becoming President
• Economists polled by Reuters expect the majority of central banks to begin cutting rate by next year, despite the most of them not expected to have hit their inflation targets by then
• The IMF (International Monetary Fund) warned that India’s decision to ban certain types of rice will bring unwanted upward pressure on food prices. Indica’s exports accounts for ~40% of global exports.
• The IMF upgraded their global growth forecast to 3% (2.8% prior) for 2023
• US consumer sentiment?

Events in focus (AEDT):

• 09:50 – Japan’s corporate service price index
• 11:30 – Australian inflation report: It’s safe to say that a hot inflation report today will be as good as a surprise RBA rate hike, where the Australian dollar is concerned. If the RBA were still debating whether to hike or not at their July meeting, there is no logical reason for them to not hike in August with another strong set of employment or inflation figures. A trimmed mean below 1% q/q could certainly dispel those fears and benefit the ASX 200.
• 22:00 – US building permits
• 04:00 – FOMC rate decision: Fed fund futures currently imply a (XXX) probability of a 25bp hike, so eyes will immediately be on the statement for any clues for an August pause. Whilst a pause could be warranted, it is up in the air as to whether the Fed want to convey that now. And they can always rollout concerns of ‘food inflation’ if they want to keep the audience hanging, with geopolitical tensions and commodity prices now rising.
• 04:30 – FOMC press conference: Jerome Powell gets to fine tune the message from the statement which markets generally misconstrue (in my opinion, at least). And it will likely set the tone for the rest of the week for markets and whether they are for or against the US dollar.

Technically Speaking:

• The USD index is hinting at a potential swing high on the daily chart after breaking a 5-day winning streak.
• This saw EUR/USD form a doji on the daily chat with its low holding above the 1.1012 high
• AUD/USD enjoyed its most bullish day in eight and formed a 3-day bullish reversal pattern (morning star reversal), which suggest an important swing low formed on Monday. It is now down to AU CPOI and FOMC meeting to decide its fate, so volatility (in both directions) is likely to be on the cards.
• A bearish range expansion day formed on USD/CNH after its bearish pinbar on Monday, with prices now considering a break of the 7.1230 low to confirm a resumption of its daily downtrend
• GBP/USD formed a solid bullish engulfing day at trend support to snap a 7-day losing streak, to suggest a key swing low formed on Monday
• The Hang Seng rallied to a 5-day high with a strong opening gap higher. A break above the 19,540 high brings the 200-day EMA at 19,747 and highs around 20,000 in focus
• The China A50 breakout and closed at a 26-day high in line with our bullish bias. The 13,000 – 13,088 zone is a likely candidate for resistance, but we’d consider longs upon any retracement towards Tuesday’s low for a move to a double top ~13,500.
• WTI crude oil

ASX 200 at a glance:

• The ASX 200 printed a small bullish day above 7300 support, although you could argue gains were limited given the rally on Asian indices and China’s promise of stimulus
• The higher reward to risk potential seems to be a hawkish Fed, as it could knock sentiment for global indices and present a run low for the ASX 200 down to around 7200
• Otherwise, 7368 and 7400 are the next resistance levels for bulls to conquer

USD/JPY 1-hour chart:

USD/JPY remained rangebound within Monday’s high to low as suspected, and its likely to continue to do so heading into the FOMC meeting unless we get something more important come along. Perhaps we’ll see a particularly strong services PMI from Japan shortly to break it lower – but that seems unlikely given the significance of the Fed meeting. But we note that prices are now hovering around the 20-day EMA, May high and Monday low, so bulls may be tempted to enter and hope it drifts higher. But if history is anything to go by, we’re not expecting any strong momentum in today’s Asian session, and moves may also be limited in Europe ahead of FOMC.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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