FX Daily Strategy: Asia, Sep 8

The Asia session sees the revised Japan Q2 GDP print where the market is looking for a nudge to 0.4% from 0.3%. The GDP deflator is still running in the mid to high 2%. Pricing for a BoJ hike in Sep stands at over ¾ with a further move largely factored in by year-end.

USD/JPY is inevitably already quite oversold on the acceleration, stretching to 154~ on the latest support break. There is such momentum at present in terms of supply into bounces and apparent ongoing positional adjustments being worked that the market could attempt to sprint on for the lower 153-52 big target levels before becoming too over extended. US CPI data looms this week as a potential short-term bounce factor but that is not until Friday and the market is on a current charge.  If the oversold consolidation/correction does kick in earlier then 155-155.25 break is the initial key resistance that needs to be regained to steady.

It’s a relatively quiet calendar Tuesday with just NAB confidence data in Australia, then German and French traded data. In the US, it’s also minor data with August’s NFIB small business optimism survey and July consumer credit.

The UK does have more interest with BoE testimony to the TSC, including Bailey, Ramsden, Greene and Taylor, covering the whole MPC spectrum. The majority view is still likely to stick to the broad line taken by Bailey in recent comments that, while the Bank cannot be complacent, lack of second round effects still give it time to wait and see. Sterling still has scope to start to lose some support on relative central bank outlook considerations, being the main potential laggard of the majors, 1.3475 is key nearby support on cable and 0.8600/10 the key immediate resistance on EUR/GBP.

Some potential focus otherwise on the latest US-Canada deadline as retaliatory tariffs on the US are due to be imposed. The market has so far been relatively phlegmatic as this moves into a typical Trump negotiation phase where escalation and de-escalation both remain on the agenda at the drop of a hat. A hawkish lean from the BoC as well as recent energy strength has also helped to counter, along with the prior positioning. In EUR/CAD terms, looking past the general dollar tone, it's currently held consolidating in a 1.6-1.61/2 range, and looking for a break to set the next trend move.

Even with the current risk/tech mood holding up, SEK also remains on the backfoot, with the CPI data on Monday (core dropping back to 0.5%) tending to reinforce the recent Riksbank speaker message that they have scope to wait regarding policy tightening. Sep has now been largely priced out and a move by end-year also greatly pared back. At the moment, they do not seem to have a pressing need to hurry. As noted in the weekly, the main obstacle is the extended moves here and the nearby resistance as EUR/SEK runs back into the 11.2~ area resistance from last summer ahead of the 11.3~ tops. NOK/SEK also approaching those similar period tops if with still a little space to run too.