TALKING POINTS: US DOLLAR, YEN, STOCKS, HONG KONG, DIDI, FOMC, AUD/USD As the mood in Asia-Pacific markets darkens, the US dollar and the Japanese yen increase. Key concerns include China’s move against Didi, fresh Covid issues, and Fed tightening. As prices threaten support near 0.74, the AUD/USD could head toward 0.71. In Asia-Pacific trade, financial markets were gloomy. The anti-risk US Dollar, Japanese Yen, and Swiss Franc climbed against their G10 FX equivalents, while regional stocks fell by about 0.5 percent on average. The bellwether S&P 500 futures are substantially lower, implying more of the same is on the way. Hong Kong stocks were particularly heavily hit, with IT giants Tencent and Alibaba leading the way lower across APAC. This is a continuation of a selloff that began earlier this week after China’s Cyberspace Administration opened an investigation into Didi Chuxing, the country’s largest ride-hailing app. Another Covid-19 wave likely contributed to the gloomy mood. Even as the country prepares to host the Olympic Games, Japan’s government has hinted at a new “state of emergency” proclamation in Tokyo. Meanwhile, daily case rise in South Korea has reached a new level. Concerns over a faster-than-expected Fed tightening appear to have played a role as well. The US Dollar fell down briefly as minutes from June’s pivotal FOMC meeting revealed mixed signals, but the currency quickly rebounded to close the day on the positive. This suggests that markets may have concluded that policymakers’ growing concerns about inflation, along with their generally upbeat view of economic growth patterns, set the ground for a faster withdrawal of stimulus (as expected). Fed Funds futures suggest one boost next year and two more in 2023, according to the market. AUD/USD ALL EYES ON 0.74 WITH SELLERS IN CONTROL TECHNICAL ANALYSIS The AUD/USD is being weighed down by the traditional negative impact of a risk-off outbreak on the sentiment-sensitive Australian Dollar, as well as Fed-linked rising pressure on the US Dollar region. Prices are testing swing-low support at 0.7445, with a critical test near the 0.74 figure in mind. A daily closure below the 0.7384-0.7413 inflection zone could pave the way for more market declines toward 0.7120. This is the implied downside target of a Head and Shoulders (H&S) topping pattern that has been in place since the beginning of the year. Sellers may be concerned by signs of bullish RSI divergence indicating decreasing bearish momentum. This could, however, be due to the current slower decline in comparison to the mid-June fall. Needless to add, this does not rule out the possibility of a positive turnaround. TradingViewFX was used to construct the AUD/USD daily chart. RESOURCES FOR TRADING—- Ilya Spivak, DailyFX.com’s APAC Head Strategist, wrote this article. Use the comments area below to contact Ilya, or follow him on Twitter at @IlyaSpivak./n
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