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Peak Pessimism For The US Dollar Driving Asia Forex

Published 27/11/2017, 12:32 pm
Updated 06/07/2021, 05:05 pm

Originally published by AxiTrader

That Chinese markets found their feet - and some support - Friday was a boon for global markets and traders which were nervously waiting to see if the previous day's weakness morphed into something more pernicious.

That it didn't was the positive force which enabled other markets around the region, and ultimately EU and US stock markets to take a positive tone to end the week. It's also a level of support which should underpin a solid start to the week on Asia's bourses.

But the charts suggest that the China A50, among the other markets, is not yet out of the woods given it is sitting just below the top of this current uptrend channel through which prices spiked and then collapsed last week.

It looks very much like a top may have been formed after last Wednesday pin bar. And while I don't rule out a test back toward that level the set up suggests on balance further weakness in the weak ahead.

That said the stabilisation of the Chinese 10-year bond back under 4% - it's at 3.95% - is an additional positive. But the chart is the chart as you can see.

Chart

China industrial profits at 12.30pm will be important on the day - the last print was 22.8%.

Elsewhere in Asia stock markets, the KOSPI is up near resistance - and recent highs - once more, the Hang Seng is still elevated - and below last week's massive spike - while the Nikkei needs to take out 22,765 to kick higher.

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Whether that is possible with the BoJ signalling a change in policy rates is an interesting question.

Over the weekend the Mainichi newspaper reported that BoJ board member Hitoshi Suzuki said “There is room to debate a fine-tuning of YCC once inflation heads near 2 percent, so that markets can gradually accept the changes,” adding “It's inappropriate for interest rates to show no changes until the 2 percent inflation target is hit, and then jump abruptly once the target is achieved”.

That’s a pretty positive expectation of the trajectory of growth and inflation embedded in that statement. And that has huge implications for the level of USDJPY, 10-year bonds, and the Nikkei in the months ahead.

Anyway, here's the Nikkei chart.

Chart

Turning to AsiaForex now and what feels very much like peak US dollar pessimism has seen local units make further ground against the dollar.

The won is down at 1086.70 - but showing signs of bottoming. USDPHP is at is at 50.65, and USDMYR looks like it may have formed a bottom based on the pin bar low last week.

Naturally much of this AsiaForex strength has been a result of US dollar weakness recently. But it has also been a response to the strength of regional currencies as well.

But for mine the big moves in USDKRW and USDSGD have in very large part been about a weak US dollar.

Chart

Looking at the chart of USD/KRW it very much looks like it is trying to form a bottom. Tomorrow's BSI along with this week's release of industrial production, retail sales and the BoK's interest rate decision will be interesting for won traders.

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It could be make ofr break for the USD/KRW weakness this week.

My bellwether Asia currency - the Singapore dollar - may also be mapping out a bottoming pattern too. Certainly, if it takes out 1.3440 that would negate any talk of a bottom, but the signs are there that like the won the Singapore dollar's appreciation against the US dollar may be coming to an end.

Chart

But as I say watch 1.3440 or we could see a full round trip toward 1.3350.

Have a great day's trading.

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