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Japan tax delay, UK inflation, RBA minutes

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In Japan, USDJPY and JPY crosses are better bid as discussions on sales tax hike delay occupy the headlines. The PM Advisor Hamada says it would be natural to delay the hike by some year and a half, the BoJ doesn’t need to proceed with additional stimulus. Meanwhile, the Finance Minister Aso highlights that raising taxes will be unavoidable at some point to finance country’s deficit. Lower JPY appetite remains limited before official announcement. Nikkei stocks recover 2.18%, Topix re-tests 1,400. USDJPY sees resistance pre-107.05 (fresh 7 year high hit yesterday before GDP release). Stops are eyed above. On the downside, bids should come into play at 115.00/115.56 (optionality / post-GDP reaction low). EURJPY and AUDJPY consolidate gains at 145.15/58 and 101.473/810 respectively.

Overseas, the RBA minutes showed the preference for stable rates continues. The BoJ stimulus and the GPIF shift to foreign, risk assets have been the new talking points that could keep AUD bid. AUDUSD sentiment remains positive. Offers are seen pre-0.88, more resistance is eyed at 0.8870/0.8911 area (Fib 38.2% on Sep-Nov sell-off / Oct 29th high).

In China, the foreign direct investments expanded 1.3% on year to October (vs. 1.1% exp. & 1.9% last). USDCNY legged down to 6.1185. Trend and momentum indicators remain marginally bullish, sustained by Hong Kong Monetary Authority providing 10 billion yuan liquidity via intraday repo facilities since last week to manage the liquidity risk related to the stock market connection. The key support zone stands at 6.1015/83 (Aug-Nov downtrend channel base / Oct 31st low).

GBP/USD consolidates last week’s post-QIR weakness. The October inflation figures are due today, the CPI y/y is expected to remain stable at 1.2%. Any negative surprise will increase the probabilities for an inflation below 1.0% in line with BoE anticipations and revive BoE-doves. Trend and momentum indicators favor the extension of weakness toward 1.55. Decent option barriers at 1.5740/1.5800 should keep the downside pressures tight. EURGBP tests 0.80 offers, if cleared will place 200-dma (currently at 0.80572) at target. Strong resistance is seen at this level as it has been more than a year the EURGBP has not traded above its 200-dma.

ECB President Draghi reiterated that the Bank stands “unanimously” ready to take additional unconventional steps to EU officials in Brussels yesterday. Despite the formation of short-term bullish technicals, EURUSD has hard time moving higher certainly due to solid top selling interest. Strong resistance is seen at 1.2577/78 (Nov 4th & 17th highs). More resistance is placed at 1.2744/96 (Fib 23.6% on May—Nov sell-off / daily Ichimoku cloud base).

Today’s economic calendar: UK October CPI, PPI and RPI m/m & y/y, ZEW Survey for German Current Situation and Expectations in November, ZEW Survey for Euro-zone Expectations in November, Italian September Current Account Balance, US October PPI m/m & y/y, US November NAHB Housing Market Index, US September Net Long-term TIC Flows and Total Net TIC Flows.

Quotes:

Ipek Ozkardeskaya – Market Analyst:

“The UK October inflation figures are due today, the CPI y/y is expected to remain stable at 1.2%. Any negative surprise will increase the probabilities for an inflation below 1.0% in line with BoE anticipations and revive BoE-doves. Trend and momentum indicators favor the extension of weakness toward 1.55. “

“EUR/USD has hard time moving higher certainly due to solid top selling interest, at the current environment where the ECB officials keep QE alternative well alive every time they have the occasion to do so. Strong resistance is seen at 1.2577/78 (Nov 4th & 17th highs). More resistance is placed at 1.2744/96 (Fib 23.6% on May—Nov sell-off / daily Ichimoku cloud base).”

“EURCHF trades in very tight ranges, as the credibility of the SNB itself keeps the levels above the critical 1.20 floor. If the SNB is to intervene, it is certainly not to prepare a base for the Swiss Gold Referendum, but to cool-off the speculative, leveraged bets which, in our view, has gone far beyond the reason.”

Luc Luyet, CIIA – Senior Market Analyst:

“The preliminary estimate of the Japanese third quarter growth has been so bad (-1.6% compared to a 2.2% consensus) that it could diminish disappointments from the Bank of Japan and the Ministry of Finance, which were both strongly in favour of the sales tax hike, should PM Abe decide to delay it. However, postponing the VAT hike means less fiscal headwinds for now, but increases the likelihood to see a combined fiscal tightening stemming from the BoJ’s exit strategy and the VAT hike later. Without proper structural pro-growth reforms from Mr Abe, it is unlikely that Japan could withstand such fiscal headwinds.”

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