Asia-Pacific Markets Face Risk-Off Move as US Dollar Batters Sentiment

US dollar, DXY, BOJ Kuroda, Japanese yen, Chinese yuan, technical outlook – talking points

• Asia-Pacific markets are under pressure after the US dollar rallied on Friday
• Bank of Japan Governor Kuroda will speak today as USD/JPY remains near 145
• DXY Index is targeting the May 2002 high after piercing trend resistance

Monday’s Asia-Pacific Outlook

Asia-Pacific market sentiment may suffer from Friday’s steep sell-off on Wall Street. The Dow Jones Industrial Average (DJIA) fell 1.62% on Friday to close the week with a 4% drop. Traders sold risky assets after UK Gilt yields rose on news of a government package of tax cuts and other expansionary measures. The British Pound fell to its lowest level since 1985 against the Greenback. Gold held up well for the week through Friday, when prices fell more than 1%. The direction of XAU may depend on the S&P 500 and broader equity direction in the coming days.

The US dollar and its dominance over the past few months has weighed heavily on Asian markets. The Japanese yen and Chinese yuan have already shown potential failure points in the system, threatening to produce another regional financial crisis. Bank of Japan Governor Haruhiko Kuroda is due to speak today as the JPY level remains a key focus for market participants. A move above 144 for USD/JPY is likely to attract immediate attention, with the 145 level being the current pain threshold for the Ministry of Finance (MoF).

Today’s economic calendar is quite light, leaving the prevailing risk trends at the helm. APAC equity indices closed mostly lower on Friday. Hong Kong’s Hang Seng Index (HSI), China’s CSI 300 and Japan’s Nikkei 225 fell by 1.18%, 0.34% and 0.58% respectively. Thailand and Hong Kong are scheduled to release trade data today, both for the month of August.

Chinese yuan is likely to remain subject to a rising Dollar this week. The People’s Bank of China (PBOC) has attempted to slow the USD/CNH ascent through its daily reference rate fixing operations, which are likely to continue (albeit with limited effect, if the recent past is any indication). Elsewhere, the South African Rand is in focus as the country struggles with another round of power cuts. The country’s energy provider, state-owned Eskom, said national grids should be expected until Thursday. USD/ZAR rose for a fourth week, bringing prices within 0.5% of the psychologically important 18.00 level.

US Dollar Technical Analysis

The DXY Index smashed its June 2002 high during last week’s big move. A May trend that initially served as support before turning into resistance has been pierced. Prices can find support at that trend line. The May 2002 high at 115.34 is a potential target, and bullish movement in the DXY momentum oscillators supports a move higher. The Relative Strength Index (RSI) has entered overbought conditions, and MACD is tracking higher above its signal line.

US Dollar (DXY Index) – Daily Chart

Chart created with TradingView

— Written by Thomas Westwater, Analyst for DailyFX.com

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