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A Quiet Day in Asia – Forex Action

With the US on vacation yesterday, activity was reduced overnight. Currency, precious metals and crypto markets traded sideways as equities took advantage of a slow news evening to stage a modest rally, led by European equities. The modest equity market rally continues in Asia, with US index futures rising since yesterday’s early morning open in Asia.

Energy markets continued to unwind Friday’s capitulation at a brisk pace this week. Reduced Russian natural gas flows are supporting European prices, with a number of countries seeking to reactivate coal-fired power plants to fill potential energy shortages. Chinese energy demand is hitting records in the north of the country thanks to a heat wave. Reuters reports that Iran is preparing to step up uranium enrichment, and US Treasury Secretary Yellen is circulating a plan to cap the price of Russian oil to starve them of revenue.

Taken as a whole, the physical market is tighter than ever and therefore the speculative capitulation in the futures markets should probably not be taken as a picture of the reality on the ground in the real world. Iran’s actions, if correct, likely mean we won’t see a return of Iranian crude to major global markets anytime soon either. The bottom line seems to be that until we see physical demand destruction, oil and other energy markets will be tighter than ever.

In Asia today, South Korea’s 20-day exports for June unexpectedly fell 3.40% year-on-year. However, most of this will be due to the truckers’ strike this month, with a recovery expected to occur in July. The Bank of Korea issued a statement saying that “the CPI is likely to remain above 5.0% for now.” The BoK appears to be priming the markets for a 50bps hike in July and a few more hikes soon after. Some concerns about the currency are clearly evident as they have warned that they will take action in the face of “herd” behavior. Translate to “if y’all keep buying USD/KRW we will intervene.” They won’t be the only Asian central bank to have this problem this year.

The Reserve Bank of Australia minutes were released this morning. The minutes were potentially signaling another 50 basis point hike next month, followed by a series of 25 basis point hikes for the rest of the year. They also mentioned that the RBA had lost some credibility in the way it abandoned its yield control policy. They shouldn’t feel too bad about it. There are plenty of other central banks with eggs in their faces, and their Trans-Tasman neighbors the Reserve Bank of New Zealand have put on a veritable Muppet Show with monetary policy and will make the RBA look good no matter what. .

That’s about it for today’s data releases from Asia and Europe, leaving markets to continue to quietly reverse Friday’s price moves until the US comes through the door, or we get a headline bomb. The Fed’s Barkin speaks tonight, but most eyes will be on US existing home sales for May. There is downside risk to the 5.40 million forecast with tensions in the US housing market evident for some time now as mortgage rates have risen precipitously. I don’t know what the reaction will be to a wrong number. Theoretically, Wall Street gnomes will price in less Fed tightening and send US yields lower and equities higher and buy risk sentiment currencies. But I also don’t see how a slowdown in the US housing market is a positive environment for equities going forward. I think I’ll sit this one and watch from the side.

Asian stocks are rising.

US futures rose in Asia yesterday and continued to gain across European time as the absence of truly negative headlines allowed buyers to dip their toes in the market. It also helped European equities rally decently as markets shrugged off the shock result of the French legislative election. S&P, Nasdaq and Dow futures rose around 1.0% overnight, and all three added another 0.55% this morning.

As US index futures hold their gains during today’s session, some confidence has returned to Asian markets, which are mostly higher today. The speculative FOMO herd pushed the Nikkei 225 up 1.90%, with South Korea’s Kospi adding 0.45%. In mainland China, the Shanghai Composite and CSI lost ground early after oddly artificial gains yesterday. Those losses have reversed again, with the Shanghai Composite now up 0.05% and the CSI 300 up 0.15%. Hong Kong’s Hang Seng jumped 1.30%, perhaps helped by signals from Evergrande about a debt repayment schedule and the relisting of its shares.

In other markets, Singapore climbed 0.75%, Taipei jumped 1.85%, Kuala Lumpur and Jakarta gained 0.45%, Bangkok 0.25%, but Manila fell 0.45%. Australian markets wasted no time in reversing yesterday’s losses, thanks to firm futures in the United States. The ASX 200 and All Ordinaries are 1.45% higher today.

Assuming the ticker remains calm, and with little data this afternoon, European markets should continue to recoup some recent losses, and as long as US housing data holds, I can see Wall Street maintaining also his recent earnings.

Currency markets trade sideways during the US holidays.

Not much has changed in the forex markets overnight despite some decent intraday ranges. The holidays in the US and a slow news reel caused traders to opt for the option to ease into the week, waiting for the US to return tonight. The dollar index edged up 0.16% to 104.48 overnight, falling a further 0.14% to 104.34 in Asia. thanks mainly to a weak yen. The Dollar Index has support at 1.0350 with resistance now distant at 1.0570.

EUR/USD rose just 0.17% to 1.0511 overnight, adding another 10 pips to 1.0525 in Asia. It has initial resistance at 1.0600, with tough resistance at 1.0650. Support is at 1.0450 and 1.0400 now although I note EUR/USD has been basing at 1.0350 twice. This leaves the door slightly open for a corrective rally this week. The pound rose just 0.27% to 1.2248 overnight, rising 0.20% to 1.2270 in Asia. GBP/USD has initial resistance at 1.2360 and 1.2400, with support at 1.2200 then 1.1950.

USD/JPY remains at 135.00 today, virtually unchanged over the past 24 hours. He is likely waiting for the reopening of the US OTC bond market tonight. It once again failed ahead of 135.45 overnight and the 135.45/60 region is now looking like a decent resistance. Unless US yields rise again this week, the odds of a downward USD/JPY correction increase. USD/JPY has support at 134.50 then 132.20.

AUD/USD and NZD/USD saw modest gains at 0.6975 and 0.6345 over the past 24 hours, with trading volumes muted, but a tentative rise in sentiment proved supportive for the of them. A holiday in the US is slowing volumes, but the two Australasians have drawn bottoming patterns on the charts. As long as 0.6850 and 0.6200 hold respectively, further gains to 0.7150 and 0.6450 cannot be ruled out.

Asian currencies are barely changed overnight as regional markets await the return of the United States later in the day. Rumors from officials in Seoul and Tokyo regarding currency speculation are likely limiting US dollar gains for now. Two notable exceptions are the Indonesian Rupiah and the Philippine Peso, which weakened sharply by around 0.65% to $14,825.00 and $54.10 overnight. It’s no coincidence that both have monetary policy meetings this week and both are reluctant rate hikers as they prioritize pandemic recovery. Increased selling pressure this week could force their hand on Thursday, but if the two keep policy unchanged, further waves of selling could occur at the end of the week.

Oil prices begin to reverse Friday’s fall.

As I highlighted above, oil futures began to reverse Friday’s price drop as speculative capitulation clashes with the reality of tight real-world energy markets. Brent crude held at $112.00 overnight, ending up 0.92% at $114.05 a barrel. It added another 0.85% to $115.15 a barrel in Asian trading today. WTI held at $108.50 overnight, ending up 0.20% at $110.05 a barrel. It jumped 1.20% to hit $111.50 a barrel in Asian trading.

Friday’s falls brought my six-month support lines back into focus. On Brent crude, it’s at $107.00 a barrel today, just below its 100-day moving average (DMA) at $107.95. Prior to that, it has support at $112.00, with resistance at $116.00 per barrel. WTI’s six-month support line is at $106.25 a barrel, just ahead of its 100-DMA at 105.25. It has tentative support at $108.50 and resistance at $112.50 per barrel.

Of the two, WTI looks the most vulnerable, having fallen further and approaching its multi-month support zone. If the U.S. cuts federal fuel taxes this week, or if U.S. housing data is very weak, that could be enough to tip the scales down. It’s hard to see either contract going below $100.00 a barrel given the state of the physical market. From a technical standpoint, I’d like to see either contract retrace a few daily closes below the longer-term support lines and the 100-DMA, before reassessing my longer-term bullish outlook. .

The Gold range continues.

It was another day of wax-on, wax-off for gold overnight thanks to the closure of US markets. It edged down 0.11% to $1839.00 an ounce. In Asia, it edged up 0.12% to $1840.60 an ounce as comatose trading conditions continue.

Despite the noise of the past week, it remains anchored in the middle of its one-month range. Overnight Price Action Shows the Inverse Correlation to the US Dollar is Stronger Than Ever

Gold has resistance at $1860.00 and $1880.00, with the latter looking like an insurmountable hurdle for now. Support is at $1805.00 then $1780.00 an ounce. Failure of the latter triggers a much deeper correction, when I would need to see a few daily closes above $1900.00 to get excited about the upside.

#Quiet #Day #Asia #Forex #Action

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