Summary:

• Asian equities begin the new week lower as investors prepare for crucial monetary policy meetings this week
• BoJ conducts another fixed-rate operation this month, retail sales surprise to the upside ahead of the meeting tomorrow
• US dollar settles down, key technical levels remain in place

The onset of trading across equity markets has not been successful. Most of Asian indices have moved lower as investors are gearing up for crucial monetary policy meetings this week with the first one as soon as tomorrow morning (BoJ, then FOMC and BoE). As of 6:23 am BST the Japanese NIKKEI (JAP225 on xStation5) is driving down almost 0.7% even as the yen is treading water. Notice that the BoJ’s meeting seems to be one of the most important events for Asian investors for this week. Even as the central bank is unlikely to change rates (nobody expects such a scenario) there are quite lofty expectations with regard to other monetary policy alterations after the latest slew of hawkish rumours.

Let us remind that as a consequence of those comments the Japanese 10Y yield increased noticeably last week crossing a 0.11% handle for the first time since the beginning of the last year. The Bank of Japan did not want to wait too long and decided to conduct two fixed-rate operation aimed at lowering yields in the midst of the curve. The day before the BoJ’s meeting the bank chose to conduct another fixed-rate operation offering to buy JGBs with maturity ranging from 5Y to 10Y. At the time of writing the 10Y yield is moving close to 0.11%. Summing up Asian indices’ performance let’s add that the Hang Seng (CHNComp) is moving down 0.6%, the Shanghai Composite is falling 0.2% while the benchmark in Sydney is retreating 0.4%.

Taking a look at the Chinese index (CHNComp) one may notice that bulls appear to be tired as the failed to break a resistance in the vicinity of a 38.2% retracement last week. As a result we are seeing the second session with bulls’ limited power, hence a comeback toward 10900 points cannot be ruled out. Source: xStation5

On the currency we may notice quite a contained range of trading for major currencies. The NZ dollar is standing out the most rising a bit more than 0.2% against the US dollar which in turn is trading flat (the index). The Japanese currency is also settling down ahead of the BoJ’s decision, and do notice that FX investors played down a solid reading of retail sales for June. Japanese sales increased 1.8% in annual terms exceeding the consensus placed at 1.7%. As far as the US dollar index is concerned one may identify that the price continue moving within a limited area being constrained by the trend line from the one side and from the resistance line from the second side. Recall that we suggested to consider taking a position on the buck at the beginning of the past week which has not been activated yet. Having a look at the daily time frame one may expect the price could take a stab at testing its remarkably important resistance at 95.00, and if so it could encourage more investors to consider taking a short given Donald Trump’s reluctance to see the much stronger currency.

The US dollar index drew the bullish engulfing last week. Right now one may suppose that a possible increase toward 95 would spur traders to sell the buck at the better price. Breaking the blue trend line would be a signal to see much severe losses. Source: xStation5