Risk sentiment remained upbeat in Asia, largely shrugging off weak manufacturing reports from China and Japan. The EUR and other risk currencies consolidated gains, but also showed signs of upside fatigue ahead of the weekend.
EUR Holds its Ground
EURUSD spent most of Asia anchored around 1.45. It hit a session low 1.4467 after Chinese PMI data, which showed factory output growing at its slowest pace in over two years, but the selling lacked conviction. The risk going into the long weekend in the US could be for some position squaring in EUR longs. The good news from Greece passing its austerity package is now priced in, as is a rate hike from the ECB next week after Trichet uttered the “strong vigilance” mantra Thursday.
Near-term resistance comes in at the overnight high 1.4538 up to 1.4550, while pullbacks should find support at 1.4450, and then the 55d MA around 1.4400. Our client flow pointed to still-robust EUR demand, favoring buyers by a ratio of 54:46, though volume was on the light side.
Cash in on Boredom
With the lazy summer months ahead in the northern hemisphere, our strategy team has put out a trade idea to cash in on a decline in EURUSD vols. They recommend looking at double-no-touch options with barriers at 1.39 and 1.51 and a two or three month duration.
USDJPY Firm, but Dull
USDJPY drew demand into the Tokyo fix which helped it up as far as 80.89. The upside looked promising, with month-end JPY inflows out the way, US Treasury yields higher, and after Japan’s quarterly tankan survey came in below expectations. But still the 81.00 level remains a formidable hurdle, with the USD’s weakness elsewhere not helping. EURJPY held firm above 117.00.
AUD, NZD Rally Pauses
The AUD and NZD cooled off after the strong gains seen in the past few sessions. The Chinese data dragged both lower, but did not light the touchpaper for a major long liquidation. Local corporates showed mild interest to sell AUDUSD above 1.0700, though it should find good support in the 1.0650/60 area, which contains the 55d MA, the June 22 high and the top of the Ichimoku cloud. Thursday’s high at 1.0751 is the first upside target.
The chat overnight was of a large option expiry Friday in EURAUD (rumoured to be worth EUR1bn) with a strike price at either 1.3550 or 1.3530. The cross hovered close to the latter level early on, but being jolted higher on the China data and ultimately settling close to 1.3550.
CHF, GBP Out of Favor
The CHF remained on the backfoot, after hefty overnight losses, as investors ploughed into the riskier end of the G10 spectrum. A dovish BoE and a weak economy continue to undermine the GBP, which remains close to 15-month lows against the EUR.
Headlines
TREASURY SECRETARY GEITHNER: IF CONGRESS DOES NOT RAISE DEBT CEILING IT WILL BE “UNTHINKABLY DAMAGING” FOR THE ECONOMY
TREASURY SECRETARY GEITHNER: I WILL BE DOING THIS JOB FOR THE FORSEEABLE FUTURE
Data
China – June PMI (official) at 50.9, consensus: 51.5, previous: 52.0
Japan – Q2 tankan survey: Large manufacturers’ index at -9, outlook at +2; consensus: -7, -4; previous: +6, +3. Non manufacturers’ index at -5, outlook at -2; consensus: +2, 0; previous: +2, -1.
Japan – May national CPI +0.3%YoY, ex-food: +0.6%, ex-food, energy: +0.1%; consensus: +0.2%, +0.5%, 0.0%; previous: +0.3%, +0.6%, -0.1%.
Japan – May jobless rate: 4.5%, consensus: 4.8%, previous: 4.7%.
Japan – May household spending -1.9%, consensus: -1.7%, previous: -3.0%.
Australia – May HIA new home sales -0.2%MoM, previous: +0.2%.
South Korea – June CPI +0.2%MoM, +4.4%YoY, consensus: +0.2%, +4.3%, previous: 0.0%, +4.1%.
South Korea – June trade balance USD+3.25bn, consensus: USD+2.8bn, previous: USD+2.75bn.
Indonesia – June inflation +0.55%MoM, +5.54%YoY, consensus: +0.37%, +0.55%, previous: +0.12%, +5.98%.
Thailand – June CPI +0.13%MoM. +4.06%YoY, consensus: +0.29%, +4.20%, previous: +0.34%, +4.19%.
