Asia trading update
Asia market continues to observe the Euro move lower, primarily from the sidelines as local trader keep ploughing all into the short AUD trade which offers both a proxy into China risk and a pragmatic play versus the widening US interest rate differentials, as the RBA sits in the realm of dovish G-10 central banks.
But on the EURUSD, according to data compiled by Bloomberg, there’s a chunky 1.1450 call strike with a notational 1.5 billion expiring Oct 5 / 18, which could be a significant battle zone over the next 24 hours.
We are starting to see and fell some regional markets consternation with USDCNH breaking above 6.90 which was previously thought to be a Pboc line in the sand, but most market participants were convinced it somewhere toward the 7.0 USDCNH, none the less its rising more than a few eyebrows from local investors. However, I’m not viewing this move as anything but the bullish dollar narrative unfolding and post FOMC. I continue to see the FOMC move restrictive territory if the data support and the terminal Fed fund rate higher, and it’s improbable that the US Treasury can make any argument for currency manipulation in this case.
The markets are looking for a possible test of 6.93-95 level as this bullish dollar narrative unfolds after the key 6.90 USDCNH gave way.
Asia stocks are not faring so well which is not so untypical when the USD dollar strengthened markedly versus Asian currencies notably vs the Yuan which is a crucial bellwether of local sentiment. But with US Treasuries busting a move higher even local bond investor is looking stateside at juicy bond yields. And while I very much in the bullish long-term camp for Asia equities, I think the resulting flights of capital via regional market rotation out of Asia into the US is just part of a natural portfolio rebalancing act on the initial wave of dollars strength and should not be construed as a significant regional risk-off bias
No central bank in the world has anywhere near the war chest the Pboc has to the right the ship. It will take some patience, but three months down the road we should start to see a shift higher in mainland economic data after the Pboc stimulus efforts.
I’m desperately trying not to be unabashedly bullish. But Brent remains firm and unshakable no matter what’s thrown at it. Whether a vast US inventory builds, or Saudi and Russia supply, the markets stay unwavering and singularly focused on Iran sanction and the ambiguity of OPEC’s amplitude to increase production quickly enough to offset any Iran supply loss. In other words, the market is focusing on spare production capacity and the US sanctions effectively drying up the physical demands.
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