FX Daily Strategy: Asia, Aug 11

Cautious start to the week, USD/JPY and yen crosses the main interest but that action still dominated by technicals more than anything- inclined to correct and backfill a little from recent oversold action and basing so long as things are quiet. Tuesday is a Japan holiday but it makes sense for Japan to keep a low profile.

The mid-week US CPI data still represents the week’s key focal point, other than ongoing Iran watching, leaving action otherwise a little bit in waiting mode.

Oil is leaking out somewhat within the band of recent weeks as a deal still not materialising and with Iran being ‘maximalist’ on its US trolling and push for concessions. There remains a lot of doubts about whether this is heading anywhere the US can swallow and the logistically (in terms of issues like insurance, terrorism legislation etc) how easily it flies even if they did.

In the meantime, the RBA decision is on Tuesday provides the main interest and we forecast no change. There is almost 100% probability of no change in the market price in fact so attention will be more on the tone. The RBA will likely take more time to assess the current developments as it waits to see how the recent energy and real economy developments play out in the next few months. 

AUD/USD has run to 0.7075 where it’s a bit overbought with 0.71 if it can stretch the corrective gains. Circa 1.2~ is key resistance on the AUDNZD cross, above which needed to extend the corrective bounce.

Stepping back from the daily, we will write about this in more detail elsewhere but for note just to note that there is something to be said for the idea of positioning for a CAD short squeeze. Recent data is suggesting some pickup in economic momentum in Canada. Into the Aug 19 US trade deadline, the market is already fully bearishly positioned and could therefore potentially see a positive surprise if recent Canada concessions (and global diversification threats) do result in progress.

Perhaps as importantly, recent spec data showed that extreme and still rising CAD shorts were an outlier amid some extreme long dollar paring, suggesting the market is again positionally maximum bearish and at risk of a short CAD squeeze. Whether that is expressed outright (maybe vs EUR) or, for instance, on a CADNOK oil cross, there is therefore some good arguments for looking for a potential CAD outperformance bounce turned squeeze in coming days.

Otherwise on the calendar Tuesday, Tuesday sees July’s NFIB small business optimism survey, while later we expect a 1.5% fall in July existing home sales to 4.03m.