Daily Report: Yen Boosted by Nikkei Weakness and China Bank Warnings, Dollar Pares Loss
The sharp rally in US stocks overnight provided little support to Asian equities. Nikkei dropped another -1% after coming back from holiday on concern that Japanese banks will need to replenish capitals and the Weakness in Nikkei halted yen's retreat. More importantly, further selling is found after China stocks reversed and dropped sharply on news that China banking regulators are raising capital requirements of banks to temper their rapid growth in lending. Further selling in yen crosses is seen as markets enter into European session and the greenback is also lifted mildly by yen.
Even after yesterday's rebound, yen crosses are generally kept below key near term resistance levels and thus, there is practically no change in the bearish outlook. Major currencies are dragged down by weakness in respective yen crosses and pare yesterday's gain against dollar. GBP/USD and AUD/USD are kept well below last week's high and thus retain the bearish outlook that they have topped out in near term at least. Similarly, USD/CAD is also held well above 1.0416 level, which retains the near term bullish outlook. The tricky parts remain in EUR/USD and USD/CHF which choppy price actions are still giving us a mixed picture.
The China Banking Regulatory Commission said that banks are discouraged to engage in any extra push to lending before the end of the year warned banks with low capital adequacy ratios that no practical remedies for the problem will prevent them from expanding their businesses. Nevertheless, the commission denied the rumor that capital adequacy ratios will be raised from 11% to 13%. Bank of China and ICBC said it's studying various options to replenish capital. INdustrial Bank said it's planning to raise 18b Yuan.
Japanese Finance Minster Fujii said that "monetary policy plays a significant role to combat deflation". He expressed his support to Deputy Prime Minister (Naoto) Kan's stance that the government would exchange views and find a solution with the BOJ.
On the data front, German GDP was finalized at 0.7% qoq in Q3. Swiss UBS consumer indicator rose to 0.87 in October. Looking ahead, German Ifo business climate is the main focus in European session and is expected to rise from 91.9 to 92.5 in November. US GDP will be the main focus in US session and is expected to be revised lower from 3.5% to 2.9% annualized in Q3. House price index and Consumer confidence and FOMC Minutes will also be featured.