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Retail bearish sentiment grows following Japan's machine order data & ahead of US CPI report

The market will no doubt react to the US CPI and US treasury sales today but then rest ahead of the FOMC meeting minutes before the algos kick in again. UK data around GDP came in worse than expected but generally better than previous readings so we could get a rise in the pound today.

Market Brief

As today is FOMC meeting minutes release day, we have mixed forex heatmaps which indicates a market waiting for news. With November already the "earliest" estimate for a taper, a Hawkish twist is unlikely to emerge from the meeting minutes. In advance of the FOMC and the US Open, the US CPI and Core CPI will be released with expectations of a slight increase of 0.3% and 0.2%, respectively, month-over-month. Those with less education, living in the Midwest, and having below-average income are more uncertain about inflation expectations according to the New York Fed's expectation uncertainty survey.

It is estimated that the UK's Gross Domestic Product (GDP) grew by 0.4% in August 2021 and is 0.8% below its pre-coronavirus (COVID-19) pandemic level (February 2020).

Consumer-oriented services increased by 1.2% in August 2021 whereas all other services grew by 0.1%; all other services are now 0.4% above their pre-pandemic levels while consumer-oriented services remain 4.7% below.

Since the lockdowns have eased and the furlough has ended, it will be interesting to see if consumer spending will increase to ultimately boost the UK's GDP through greater usage of services. The government could do more to encourage workers back into offices and businesses since it has been shown that working from home leads to less discretionary spending.

The UK's production output rose by 0.8% in August over the previous month, slightly above analysts' expectations, according to the Office of National Statistics (ONS).

The pound caught a bid at the start of the London session and is currently bound to the daily 20-period ema. The current level is a big resistance zone with falling moving averages indicating that lower prices have a higher probability of occurring. There is no trade here today unless we get a big reversal lower. A drop in US CPI could be a catalyst for the US dollar to fall as it is entering an overbought level.

According to the General Administration of Customs of China, the country's balance of trade surplus increased to $66.76 billion, a significant increase when compared to September's $58.31 billion.

Exports increased by 28.1%, while imports increased by 17.6%, slightly below analysts' expectations.

The USDCNH is suspiciously inactive over the last 4 months which would suggest that the CCP and PBOC are intervening in the forex markets and pegging their yuan to 6.45, in blatant currency manipulation. Whether the idea is to keep the US dollar elevated and buy up gold to back their currency and eventually have enough to challenge the US dollar’s reserve status I am not sure. But something is going on. Which is usually not a good sign.

The coronavirus pandemic continues to impede the economy, as reflected in the unexpected decline in Japanese machinery orders in August. On a seasonally adjusted basis, the total value of orders received by 280 manufacturers operating in Japan decreased by 7.8% in August from the previous month. In August, private-sector machinery orders decreased seasonally adjusted by 2.4%, excluding those placed by ships and including those placed by electric power companies.

As investors awaited U.S. inflation data due later today, the Nikkei 225 Index briefly rose but then fell over 90 points to 28,140 ahead of the London open. Gains by Japanese retailers were outweighed by declines in the industrial, shipping, and utility sectors.

The USDJPY sentiment indicator on the ActivTader platform shows that 74% of the traders are looking for shorts currently. This extreme reading is enough for me to look for more reasons to belong to the USD versus the weakening yen.

However, it would be nice for a bit of a pullback to occur to allow traders to test the breakout level and see if it holds as support. This would be a healthy correction before a larger move is higher.

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