FX Daily Strategy: Asia, Sep 12th

The high profile political assassination of Charlie Kirk will create more uncertainty in the U.S.. After Trump faced his own assassination attempt, his political approach has changed drastically and reliving this dejavu with a close ally of his will guarantee action from Trump. What is more concerning is in the civil aspect. It has been a while since a high profile figure being assassinated openly, especially someone with close connection to the younger generation that are more susceptible to viral transmission of sentiment. Regardless of political tilt, Charlie Kirk has been a public yet close figure to youth and could spark more polarized response after his death. The conflict with the U.S. has been structural and lasted for years but such could trigger a broad base reaction in the coming days.

The potential volatility in the political and social landscape may be sufficient to move the USD. Market participants are fixated on the September FOMC meeting and will unlikely be positioning significantly before the result of the coming meeting. What will likely be moving the greenback more will be Fed's speakers remark and potential challenge of Lisa Cook's position. 

On the chart, the bounce from the 96.25 low of 9 September has extended, with prices once again trading above 97.50 as cautious sentiment keeps near-term price action choppy. Oversold daily stochastics are edging higher, suggesting room for a test of congestion resistance at 98.00. But the flat daily Tension Indicator and mixed weekly charts are expected to limit any break in renewed selling interest towards further congestion around 98.50. Meanwhile, support remains at 97.50 and extends to further congestion around 97.00. A break beneath here would turn sentiment negative and open up critical support at the 96.38 current year low of 1 July.

Although we are pointing to a flat m/m GDP outcome for the looming July data, the projection is more precarious than hitherto.  For a start, retail sales data for July have yet to be published and the question is to what degree the deferred data now due Sep 5) will contain possibly sizeable and picture-changing revisions.   There are some better signs in terms of July car production and real estate activity but these are far from authoritative not least against a weak business survey backdrop, albeit with some such indicators much weaker than others.   Even so, at this juncture, the strong June outcome has created a solid backdrop for the current quarter GDP to support the BoE’s 0.3% Q3 forecast – even successive 0.1% m/m declines would still leave the quarter up a notch in q/q terms, that is without what may still be likely revisions.

To what extent better weather in June GDP, not least it having been the warmest even such month in England, lay behind the fresh upside surprise that saw the economy grow 0.4% m/m, twice generally expected and with the falls of the two previous months pared back so that a clearer uptrend has emerged (Figure 1).  The result was that the economy grew by 0.4% q/q in Q2 also higher than expected.  Admittedly, this latter rise was based almost solely around a fresh rise in government spending and equally a further build in inventories as well as net trade that failed to turn negative after the tariff-induced distorted Q1 jump.  This means that GDP growth this year may be around 1.2% (previous estimate sub-1%) but where more ominous signs suggest a) that the underlying economy has been growing far less appreciably and b) where downside risks still persist for H2 and into next year, this highlighted by fresh news today of an ailing housing market.