Japan in focus ahead of production data

It has been a quiet start to the week for FX markets in Asia with some sidelined price action in most major currency pairs.

We are seeing some disjointed moves in the risk currency space at the moment with assets mostly in a consolidation phase on relatively light volume. USD/JPY was relatively sidelined around ¥96.30 ahead of Japan data, but has since lost ground and is testing support at ¥96. Japan’s quarterly GDP showed a 0.6% improvement, which was mildly below expectations of 0.9%. However, consumer inflation data showed some positive signs with a 2.2% rise.

Investors were not quite sure how to react to the mixed data and we have now seen the pair come off the lows to be trading now at ¥96.60 ahead of industrial production data. The top end of the recent range for the pair is at ¥97 and that is the level we are eyeing for near term resistance.

Taking a look at the risk currencies, AUD/USD has continued its monster recovery and is just nudging through its highs from last week at 0.922. Perhaps reports that China is offering stimulus to local governments to maintain growth in local economies is helping to underpin risk in Asia. This is supporting a short term squeeze higher in the AUD and we still feel sellers will come back into the market in the 0.93 region.

EUR/USD stuttered at 1.34 and has been losing ground since then. The pair looks like it will test $1.33 in the short term unless we see some strong readings from the German ZEW economic sentiment and German GDP, which are due out this week. GBP/USD is sidelined at 1.55 in Asia and there is quite a bit of data on the economic calendar for the pound this week.

Traders should keep an eye on the August BoE minutes to get a bit more information on the introduction of forward guidance.  On the US dollar side of things, this week will help shape up tapering views with US retail sales, CPI and consumer confidence due out.

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