Summary:

• Asian markets traded mixed on Monday, with Chinese stocks outperforming others in the region
• The Australian dollar was the strongest currency on the fx market
• Dollar lost on political woes, positioning ahead of the FED’s meeting

Asia markets traded mixed on Monday, with traders focused on the wobbling dollar and the upcoming two-day policy meeting from the Fed later in the week. Japan’s benchmark Nikkei 225 pared some of its losses to close down 0.62 percent while the Topix index closed down 0.52 percent.  On the Chinese mainland, the Shanghai composite bucked the downward trend to trade up 0.68 percent. The Shenzhen composite reversed early losses to tack on 0.47 percent in afternoon trade. In Hong Kong, the Hang Seng index traded up 0.34 percent.

The euro traded at 1.1655 on Monday morning, retreating from an earlier high of 1.1684. Elsewhere, the Japanese yen traded at 111.09 to the dollar, weakening from an earlier high of 110.75, and the Australian dollar fetched 0.7950. The Aussie was the strongest currency on the fx market as traders were preparing for the crucial data from Australia due later this week.  Ahead of the Fed’s meeting, most analysts don’t expect the U.S. central bank to move on interest rates, but they said the market will look for clues on when the Fed will commence the process of balance sheet shrinkage.

 Aussie’s rally continued in the morning, with AUDUSD rising to 0.7950. The next resistance lies at 0.800, a psychological barrier.

The dollar lost also on the political woes in the US. Last week, a shakeup in the White House saw press secretary Sean Spicer abruptly resign after opposing President Donald Trump’s appointment of Anthony Scaramucci as communications director. The musical chairs within the administration are likely to add to the perception of a wobbly White House subject to infighting. What’s more, over the weekend some reports said that special counsel Robert Mueller’s investigations were broadening to include prior Trump business dealings. Mueller, a former FBI director, was named by the Justice Department in May to lead an investigation into Russian interference in last year’s U.S. elections. Reports also suggested Trump is considering terminating Mueller and that the president was looking into the extent of his authority to issue pardons to aides.

FED’s meeting and political woes will be particularly important for the USDJPY. The pair depends on what’s going on with US yields and the risk aversion, so the higher risk, the lower USDJPY.  As we can see on the chart below, the pair has broken below an important support at 111.00 and a fall towards 110.50 should be expected in upcoming hours.

 The rally of the USDJPY from late-June has vanished, leaiving the pair poised for another leg lower.