USD/JPY holds support, DAX breaks 15k: European Open – Nov 2, 2023

Asian Indices:

• Australia's ASX 200 index rose by 61.4 points (0.9%) and currently trades at 6,899.70
• Japan's Nikkei 225 index has risen by 358.82 points (1.13%) and currently trades at 31,960.47
• Hong Kong's Hang Seng index has risen by 160.97 points (0.94%) and currently trades at 17,262.75
• China's A50 Index has risen by 13.2 points (0.11%) and currently trades at 12,105.88

UK and Europe:

• UK's FTSE 100 futures are currently up 35 points (0.48%), the cash market is currently estimated to open at 7,377.43
• Euro STOXX 50 futures are currently up 30 points (0.73%), the cash market is currently estimated to open at 4,121.71
• Germany's DAX futures are currently up 103 points (0.69%), the cash market is currently estimated to open at 15,026.27

US Futures:

• DJI futures are currently up 12 points (0.04%)
• S&P 500 futures are currently up 10 points (0.23%)
• Nasdaq 100 futures are currently up 58.25 points (0.4%)

With 1-day implied volatility for GBP/USD sitting around its 20-day average, fireworks do not seem to be expected from today’s Bank of England (BOE) meeting. The BOE are expected to hold their rates steady at 5.25% today with a 7-2 majority from voting members, up from 5-4 at their September meeting. It could be their second consecutive hold, and recent data suggest they may indeed have reached their terminal rate – even if they’ll likely be forced to retain a hawkish bias (just in case, as they’ve had their fingers burned before).

With markets more convinced than ever that the Fed are done with hiking, we either need to see incoming economic data fall below par or far exceeded expectations on aggregate. I’m not convinced we’ll see any such wide deviations in today’s job cuts or jobless claims data ahead of tomorrow’s nonfarm payroll report, so we may find that sentiment is once again dictated by the strength of the US dollar – which is taking its lead from bond yields.

The Norges bank are also expected to hold interest rates steady for the first time since January at 4.25%. A surprise hike would see rates at their highest level since 2008, when they were last in freefall.

Events in focus (GMT):

• 07:30 – Swiss CPI
• 08:55 – German manufacturing PMI, unemployment
• 09:00 - Norges Bank interest rate decision
• 11:30 – US Challenger job cuts
• 12:00 – BOE interest rate decision, MPC votes
• 12:30 – US jobless claims, unit labour costs
• 14:00 – US durable goods orders
• 14:15 – BOE governor Bailey speaks
• 17:00 – SNB chairman Jordan speaks

• 1-day implied volatility has flagged today’s BOE meeting as a potential nothing burger (BOE to hold)
• Implied vol for USD/JPY is again nearly twice its 20-day average, although the average daily range has been met in the Asian session
• EUR/USD also seems to have some juice in the volatility tank with IV at 170% if its 20-day MA.

USD/JPY technical analysis (1-hour chart):

USD/JPY continued to retrace during Thursday’s Asian session, yet prices remain above the 50% level of Tuesday’s Marabuzo candle. Support has also been found around the 200-bar EMA, monthly pivot point and above the weekly pivot point before momentum turned higher. I suspect USD/JPY could be due a bounce over the near-term, although 151 may ca as resistance (near the upper 1-day implied volatility level). Beyond that, it remains down to the general USD performance alongside yields and whether the BOJ decide to intervene (or not) as to where USD/JPY could land tomorrow.

DAX technical analysis (daily chart):

The bullish bias last Tuesday from the December high moved in line with the bias of the day, although couldn’t quite reach 15k. Another bout of selling later, the 14,600 level came to the rescue again and helped the DAX rally three consecutive days above 15k. The market has gapped higher, and I’m not yet convinced we’ve seen the high of this run, given the size of Wednesday’s bullish candle and the fact it closed at the high of the day. Still, the DAX remains within a bearish channel, so that means bulls can either seek bullish continuation patterns on the intraday timeframes, or wait for evidence of a swing high around the bearish trendline before seeking a short on the daily chart.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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