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Cautious optimism emerged the underlying theme in Asia on Fed Wednesday, as the US-China trade talks kicked-off in Shanghai while markets remained unnerved ahead of the first US Federal Reserve (Fed) rate cut in a decade. The Asian markets traded with moderate losses alongside the US Treasury yields. However, the US equity futures traded firmer that kept the USD/JPY pair supported at the 108.50 level.

The AUD/USD pair staged a rebound from six-week lows of 0.6862 and tested the 0.69 handle on upbeat Australian CPI figures and trade deal hopes. The Kiwi, on the other hand, fell to 0.6590 levels on disappointing China manufacturing PMI reports. The official Chinese manufacturing PMI remained in contraction last month, reinforcing China slowdown concerns. Meanwhile, EUR/USD pair stuck to its recent trading range around the midpoint of the 1.11 handle ahead of key macro releases. The Cable made another recovery attempt on the 1.21 handle.  

Among the commodities, the safe-haven gold held onto the recent gains near 1430 levels, while, both crude benchmarks advanced on massive US API crude inventory draw and likely Fed rate cut.

Main Topics in Asia

US-China Trade Updates

China, US trade representatives meet and shake hands in Shanghai, as talks begin on Wednesday

US-China trade talks restarted; atmosphere is good – Global Times

US trade negotiators need to show ‘sincerity’ in Shanghai talks – Global Times

Other Key Headlines

North Korea fired multiple unidentified projectiles early Wednesday – Yonhap

Japan PM Abe: Working with allies after North Korea missile launch

UK’s Barclay: Two new Brexit committees are now up and running

Trump administration will again waive nuclear sanctions on Iran – Washington Post

Chinese PMIs: Manufacturing marginally beats expectation but stays in contraction territory

PBOC: Overall banking system liquidity at reasonably ample levels

Aussie CPI beat lifts the Aussie 23 pips vs the Dollar

WTI technical analysis: At session highs but looks heavy

Asian stocks drop, Kospi hits 7-month low ahead of the Fed

Key Focus Ahead

All eyes remain on the US Federal Open Market Committee’s (FOMC) monetary policy announcement due later on Wednesday at 1800 GMT, with a 25-bps rate cut unanimously priced-in by the markets. Therefore, the main focus will be on the language in the Fed’s policy statement and President Powell’s press conference for fresh hints on the US interest rates outlook. A less dovish-than-expected Fed outcome is likely to trigger an extensive USD rally across the board.

Ahead of the Fed event, the macro calendar looks eventful, with a raft of key economic data due on the cards from Germany and Eurozone while the NA docket also remains data-heavy. Also, the focus remains on the resumption of the trade talks between the US and China in Shanghai.

Heading into Europe, the German Retail Sales data will be eyed at 0600 GMT, followed by the German jobs data at 0755 GMT. At 0900 GMT, the Eurozone Prelim GDP and CPI data will drop in and is likely to have a significant impact on the shared currency. Ahead of the US open, the US ADP jobs report will be published almost around the release of the Canadian monthly GDP figures at 1230 GMT. Meanwhile, traders await the EIA Crude Oil Stocks Change data (at 1430 GMT) for fresh direction on oil prices.

EUR/USD: In stasis ahead of key German, Eurozone data and Fed

EUR/USD  is lacking a clear directional bias ahead of the key macro data releases. The EUR will likely break lower if Eurozone’s inflation reinforces dovish ECB expectations. Losses could be short-lived ahead of the Fed decision.  

GBP/USD stabilizes around 1.2150 amid few fresh Brexit clues, ahead of Fed

Brexit doldrums keep exerting downside pressure on the GBP/USD pair. Boris Johnson will travel Northern Ireland on Wednesday. Absence of fresh catalysts and markets wait for FOMC triggers the quote’s latest pullback.

Euro-zone GDP/ CPI preview: Depressing data may undermine EUR/USD ahead of Fed

Euro-zone July inflation and second-quarter GDP are set to show a slowdown. The European Central Bank will be using this data to construct its monetary stimulus package. The figures due out hours before the critical Fed meeting may weaken the euro.

Federal Reserve Preview July 30-31 FOMC: Is this a rate cycle?

Fed Funds expected to be cut by 25 basis points to 2.00%-2.25%. First rate reduction since December 2008. Rate guidance for the remainder of the year most important.