USD/JPY and USD/CAD continue to slide ahead of US CPI and BOC meeting

Asian Indices:

• Australia's ASX 200 index rose by 22 points (0.31%) and currently trades at 7,130.90
• Japan's Nikkei 225 index has fallen by -198.64 points (-0.62%) and currently trades at 32,203.57
• Hong Kong's Hang Seng index has risen by 215.34 points (1.15%) and currently trades at 18,875.17
• China's A50 Index has risen by 12.94 points (0.1%) and currently trades at 12,613.00

UK and Europe:

• UK's FTSE 100 futures are currently up 21 points (0.29%), the cash market is currently estimated to open at 7,303.52
• Euro STOXX 50 futures are currently up 18 points (0.42%), the cash market is currently estimated to open at 4,304.56
• Germany's DAX futures are currently up 55 points (0.35%), the cash market is currently estimated to open at 15,845.34

US Futures:

• DJI futures are currently down -9 points (-0.03%)
• S&P 500 futures are currently up 2.5 points (0.06%)
• Nasdaq 100 futures are currently up 21.75 points (0.14%)

• The RBNZ held interest rates at 5.5%, which is their first pause after 12 consecutive hikes totalling 525bp. Their statement maintained a dovish stance, which keeps expectations for the peak rate at 5.5%
• From 2024, the RBA are to implement changes recommended by an independent review, such as reducing monetary policy meetings from 11 per year to 8, releasing the SOMP (statement on monetary policy) alongside a meeting and holding a media conference after each meeting
• The DAX rose for a third day as it joined European shares hopes of a softer US inflation print (despite economic data for Germany and the eurozone_ and index futures markets are also higher ahead of the open
• The US dollar is currently the weakest major as traders continue to place bets of a weak inflation report, which could lead to some disappointment, short-covering and USD buying if inflation throws a curve-ball and comes in hot
• Canada’s strong employment report on Friday has bolstered bets of another 25bp BOC hike today at 15:00 BST, which leaves the question as to whether it will be a ‘one and done’ affair or it includes a hawkish undertone to tease with further hikes.
• USD/CAD has touched a 2-week low ahead of today’s BOC meeting, where a hawkish hike alongside soft US inflation could send it further towards the June low
• Stronger UK wages data all but confirms another 50bp BOE hike and for a terminal rate above 6%, which saw the pound continue to strengthen during the Asian session and push GBP/USD to a 15-month high and just shy of our 1.3000 target
• EUR/GBP closed at an 11-month low yesterday and now trades within a tight range near yesterday’s lows. Whilst this runs the risk of a countertrend stop run after the UK open, bears may be waiting to renter shorts at higher levels to rive the pair lower
• USD/CHF broke to a fresh YTD low yesterday on hopes of a soft US CPI report and now trades just 20-pips above the 2021 low (the next line of defence for bulls)

USD/JPY daily chart:

The selloff on USD/JPY continues and is within its fifth day lower during the Asian session. Whilst we need to see how US inflation goes to confirm the fifth day, it is worth noting that it has not closed lower for five days since December (and the time prior to that was in April 2021). This metric alone has us on guard for a potential inflection point. And the fact that it is also within its worst 5-day run in seven months whilst the decline is fast approaching several technical support levels simply adds to the conviction that an inflection point may be close.

Does not make it a great entry for bulls to consider? Perhaps, but not necessarily. But it should at least serve as a warning to bears to reconsider before loading up at what could become cycle lows. At a minimum we suspect a pause in trend, but if prices are to bounce it is difficult to say how far or for how long.

A meaningful countertrend rally could require a particularly strong inflation report from the US coupled (which seems unlikely). Therefore, traders may want to refer to lower timeframes to seek opportunities, whilst keeping in mind the bigger picture levels nearby.

USD/CAD daily chart:

USD/CAD has fallen to a 2-week low in line with our bearish bias which was outlined on Monday. We didn’t see much of a pullback inside Friday’s range, but Tuesday’s break of Friday’s bearish engulfing candle has confirmed the two-bar reversal, which formed almost perfectly at the 50% retracement level and 200-day EMA. Ad as the reversal came at the end of the third wave, we’re looking for a retest and break beneath the June low and run for 1.3000. A hawkish BOC hike and soft US inflation report could likely help with that bias.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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