– EUR to remain supported despite weak eurozone economic picture
The eurozone composite PMI rose ever so slightly in November, to 45.8, from 45.7 in October. Within that, the manufacturing PMI performed better-than-expected, showing a rise to 46.2, from 45.4, while the services PMI slipped to 45.7, from 46.0. The eurozone indicator follows better than expected outcomes for France, with a more mixed picture this month for Germany (the services PMI here receded). Overall, while the PMIs included upside surprises, the surveys continue to point to a weak eurozone economy – the composite PMI is close to its lows for 2012 and is well into contractionary territory. In the short-run economic data from the eurozone is likely to remain weak, but for the EUR we view that expectations of further Fed easing in December and positive impact of progress on a decision for Greek funding and debt sustainability are likely to remain significant drivers. Recent comments by Germany’s Finance Minister Schaeuble suggested that there were only “technical questions” to be solved while EU president Junker also said there were “no major political disagreements”. Eurozone finance ministers are set to reconvene on November 26 where we expect progress is likely to be made on Greece. Accordingly, we view that EURUSD will continue to remain supported and we look for the cross to towards 1.33 by year-end.
– AUDUSD to head higher as economic outlook for China improves
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. Meanwhile, over the months ahead we expect increasing confidence in a strong economic outlook for China is likely to support inflows into the Asia region. Our China economists expect USDCNY to reach 6.00 next year and, in G10 FX, the AUDUSD is likely to benefit.
– 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 up move.
BNP Paribas