– AUD supported by strong Chinese HSBC flash manufacturing PMI
AUD and risk assets gained after Chinese HSBC flash manufacturing PMI printed strong, supporting our call that China’s growth has bottomed. The index rose to 50.4 in November from 49.5 in October, marking the first move back into the expansionary zone (>50) for the first time in 13th months. The output sub-index also rose to 51.3, the highest since October 2011. Watch AUDUSD resistance at 1.0400 and AUDJPY resistance at 86.00. With Thanksgiving holiday today, expect G10 and Asian currencies to be range bound.
– Investors’ maintain a long USDJPY bias
JPY was the big mover overnight driven by market expectations for a more aggressive post-election BoJ monetary policy stance. USDJPY broke above the 82.00 barrier triggering stops losses to high of 82.60, but large offers towards the 83.00 resistance should keep USDJPY rise in check ahead of the weekend. Japan Finance Minster Jojima said that the cabinet aims to approve new economic package on November 30. Political headline risk prevails: LDP Abe said that they would revise BOJ law if necessary. However, its worth noting that LDP Policy Chief, Akira Amari, on Wednesday toned down comments by party leader Abe, suggesting that any JPY intervention would take place after consultation with other countries. Amari also ensured that the BoJ would remain independent. We note that previous BOJ asset purchases have not weakened the JPY on a sustained basis. Relative yields continue to suggest that USDJPY is vulnerable to moving lower once political concerns fade. We continue to look for opportunities to fade this extended upmove.
– EUR resilient to the Greek delay
The negative reaction to the postponement of the decision on Greece by the eurozone finance ministers proved to be short-lived. Comments Germany’s Finance Minister Schaeuble that there were only “technical questions” to be solved probably helped to ease market fears. EU president Junker also said there were “no major political disagreements”. Eurozone finance ministers are set to reconvene on November 26. Expect a headline chop-fest for the EUR into the weekend; but we view that progress is likely to be made on Greece over the weeks ahead and look for a EURUSD rally towards 1.33 by year-end. On the data front, Eurozone November ‘flash’ PMI data is due today. Our economists expect the manufacturing index to rise slightly to 45.6 and the services index to fall to 45.5. Although these readings will support the view that the contraction in the eurozone economy is likely to accelerate in Q4, fading global risks and the Fed’s aggressive policy easing should be conducive for a stronger EURUSD.
– BoE’s sterling discussion unlikely to derail our view for GPBUSD to rally by year-end
The BoE minutes yesterday were in line with Governor King’s comments at the release of the Inflation Report last week, indicating that the BoE is in wait-and-see mode at the moment but that further QE next year remains a possibility. One new development is that the MPC discussed whether an appreciation of sterling could damage the supply side of the economy, leading to softer growth and higher unemployment. However, not all of the MPC agreed with this theory and it appears unlikely that sterling’s performance will become a major influencing factor into BoE policy. From an FX perspective, we view that GBP still look favourable relative to other G10 peers. In particular, we expect GBPUSD to be supported by broad USD weakness led by a dovish Fed. We maintain our forecast for GBPUSD to rally to 1.68 by the end of the year.
BNP Paribas