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Japan prepares for snap elections, GBP weaker post-QIR

Maria Diviney
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Japan prepares for snap elections, GBP weaker post-QIR

Japan stocks took a lift as politicians gave more clarity on December snap elections. The Japan PM Abe asked his party to prepare for December elections (Nikkei), while ex Deputy PM Oshima said it is a done deal (Jiji). USDJPY and JPY crosses were better bid in Tokyo. USDJPY advanced to 105.88. The weakening bull momentum will likely contain appetite for lower JPY until next Monday’s GDP release. A weak print will increase the probability of delay in sales tax hike, therefore should revive BoJ-doves and re-boost USDJPY toward 118/120 levels. AUDJPY holds ground above 100 despite a short-lived sell-off on RBA comments.

RBA’s Kent said the high AUD, weak mining investment, low rates and fiscal tightening should further weigh on Australian economy. An FX intervention cannot be ruled out, he added. AUDUSD remains offered at 0.8735/44 (21-dma / Fib 23.6% on Sep-Nov sell-off). The MACD stepped in the green zone hinting at further upside correction.

GBP-complex slid lower as the BoE cut its growth forecast, warned that the inflation may well slip below 1% in the coming months, and that the GBP strength has counted for 75bp drop in inflation over the past year. The dovish tone further weighed on GBP post-Carney. According to QIR, the inflation is expected to rebound toward BoE’s 2% target in three years from now, undermining that the first BoE rate hike should not happen any time before June 2015. GBPUSD opened at fresh year lows today (1.5779), large vanilla expiries at 1.58+ should keep the bias on the downside.

As suspected, EURGBP stepped in its daily Ichimoku cloud cover (0.78747/0.79163), the MACD (12, 26) stepped in the green zone suggestive of short-term bullish reversal. EURGBP opened above 21/50-dma. The candle patterns print formation of bullish engulfing (conviction 4/9). The option bets are mixed at 0.7860+, turn positive above 0.7950 at today expiry and should give additional support to EURGBP tactical longs. Key resistance is placed at 0.80400/600 (Sep/Oct highs).

EUR/USD consolidates weakness before the October CPI release across the Euro-zone. The aggregate CPI is due tomorrow, expectations remain soft. Large option barriers are seen at 1.2500/1.2550/1.2600 before the weekly close, should limit upside attempts. EURCHF traded lower to 1.20179 yesterday. We stand ready for SNB intervention should selling pressures weigh on 1.20 floor.

Today, ECB publishes monthly bulletin. Traders watch German, French, Spanish Italian October CPI m/m & y/y, French September Current Account Balance, Swiss October Producer & Import Prices m/m & y/y, Canadian September New Housing Price Index m/m, US November 8th Initial & November 1st Continuing Jobless Claims, US October Budget Statement and US September JOLT Job openings.

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