US Dollar Holds Gains as Japan Boosts and China PMI Weighs. USD Volatility Ahead?

US Dollar, Japan Election, USD/JPY, China PMI, AUD/USD - Talking Points

• USD has made gains ahead of a Fed meeting that’s expected to tighten
• APAC equities outside China were positive on Japanese election result
• Central banks are front and centre of markets’ scopes.What does it mean for USD?

Asian equities were mostly higher today, led by Japanese stocks rallying in the aftermath of

Japanese Prime Minister Fumio Kishida securing an outright majority in the lower house for his incumbent Liberal Democratic Party (LDP).

Polls had the government lagging and concerns were apparent for a minority government that would struggle to push through recovery spending packages. With the win, the market sees the LDP opening the purse strings to stimulate the economy.

The Yen weakening on the election result saw USD/JPY move higher. The US Dollar has held onto gains seen on Friday in most currency pairs, thanks in part to month end flows. The Fed meeting on Wednesday could see a pick-up in volatility for the US Dollar.

The British Pound will also be in focus ahead of Thursday’s Bank of England meeting, where it is expected that the bank will launch into tightening mode.

The risk-on environment was aided by the Nasdaq 100 and S&P 500 making new all-time highs on Friday.

However, Hong Kong and Chinese stocks were lower after disappointing data over the weekend. The China manufacturing purchasing managers index (PMI) fell to 49.2 for the month of October from 49.6 in September, missing market forecasts of 49.7.

Higher energy prices, blackouts and lockdowns appear to be taking a toll. Iron ore prices continued to push lower. Crude oil was slightly softer to start the week, as attention will turn to the OPEC+ meeting that will take place on Thursday.

The bond market rout that rocked Australian fixed interest last week, recovered somewhat today. The sell-off was a result of the RBA appearing to let go of yield curve control prior to their monetary policy meeting tomorrow. Despite the positive tone in markets, AUD/USD went lower today.

It is big week of central bank meetings with the RBA tomorrow, the Fed on Wednesday, and the Bank of England on Thursday. In the US today, there will be the release of ISM, PMI and construction spending data.

US Dollar (DXY) Technical Analysis

The US Dollar remains within an ascending trend channel that started in June. The 21-day and 55-day simple moving average (SMA) appear to have some technical contribution.

At the end of last week, DXY moved down toward the 55-day SMA and twice bounced off this SMA. It then moved up through the 21-day SMA, an SMA that has previously offered some resistance. These 2 SMAs might provide support for the US Dollar along with the lower bound of the trend channel.

Previous lows of 93.278, 92.981, 91.947 and 91.782 are potential support levels. On the topside, the recent high of 94.561 may offer resistance.

Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter