Asia Session Summary – Holiday Thinned Trading

Holidays in China, Hong Kong, Taiwan and India saw muted trading in much of Asia with the USD holding firm, except against the JPY.

With so much of the region on holiday today, the focus rested mostly on the USD/JPY and AUD/USD. This follows the tumble in US yields yesterday and the RBA rate decision this afternoon. The dovish tone of the RBA staying unchanged overrode any positive sentiment from this morning’s near record trade surplus. In Japan, the Yen continued to strengthen against the USD and Euro as the yield spread narrowed and risk aversion from Japanese investors continued.

Today in Europe we have ECB President Mario Draghi talking this evening, as well as Euro-zone Retail Sales. The U.S. announces the Trade Balance, Durable Goods and Factory Orders. Tonight will also be notable as the White House announces its mark 2 version of the Obamacare Repeal.

Equities

The Nikkei fell over 1% today as a strengthening Yen weighed on sentiment and pushed automaker stocks in particular, lower. Mainland China and Hong Kong markets were closed. The Nikkei will likely continue to remain heavy as USD/JPY approaches the 110.00 level and JGB’s continue to rally on safe-haven flows. The next important level is 18,850 just below.

FX

AUD struggled today as a dovish RBA (particularly on jobs) and falling imports data tipped it through key support at 7590. Aud has continued to fall into the afternoon session with nearby support at 7550 with a break possibly setting up a test of key long-term support in the 7490/7500 area.

AUD/JPY is also suffering as a high beta pair to the risk -on, risk-off complex.The cross is finishing on its lows at 83.45, having broken support at 83.75. A daily close would be quite bearish technically, setting up further possible losses to the 82.50 area.

USD/JPY has had another bad day as U.S. yields tanking added to the already bearish technical picture. We finish in Asia at the lows of 110.40 having fallen from 111.00 this morning. The bounces in USD/JPY from a technical perspective, have been tepid, to say the least. 110 is the key support level now with stop-loss selling anticipated on a break. Until then, we remain becalmed within the recent 110/112 trading range.

EUR/JPY has broken support at 118.25 and is testing its 200-day moving average at 117.65 as I write. Although a daily close below would be bearish, we do note that the daily RSI is in oversold territory. This may make the technical picture less clear and leave the cross vulnerable to a possible squeeze higher in the short term before the bigger technical picture re-establishes itself.

EUR/USD. The highlight will undoubtedly be Mario Draghi speaking at 2130 Singapore time. The street seems to have taken the ECB’s guidance to heart and scaled back on their tapering ambitions. With Greece coming back into the headlines for all the wrong reasons, peripheral spreads of Bunds, in particular, have widened. This has seen the Euro fall from grace quite quickly from the taper-tantrum heights of last week. The single currency, however, does have technical support down here at 1.0640, yesterday’s low, and more importantly at the 100-day moving average at 1.0630.

In the bigger picture, the key level for Euro is 1.0500. Momentum appears to be waning down here for now from a chart perspective, meaning Euro could be vulnerable to a squeeze higher.

Precious Metals

Gold is benefitting from the risk aversion in other markets, finishing up five dollars in Asia at 1258.50. Dips have been shallow of late, with 1240 now very strong support on the daily charts. This seems to be setting up gold for a test of its 200-day moving average just above at 1259.50. The 200-day has capped all successive rallies this year. A close above 1260.50 now would be a strong technical signal that we are going to higher levels.

Silver has already broken through its 200-day moving average at 18.0900, and this has held all pullbacks in the last week, making it strong support on the technicals. Silver has moved directly higher today from its New York close. Up some 10 cents from 10.2500 t0 10.3500 and putting it in sight of key resistance at 18.5000. The price action suggests a test of the latter is almost inevitable, with a daily close above, possibly setting up a technical move to the 19.0000 area.

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