In Asia, Japan saw a worse-than-expected preliminary June manufacturing PMI, while the preliminary HSBC manufacturing PMI for China beat slightly, though both were slightly below the 50 level, suggesting mild contraction.
This is particularly bad news for Japan if this is a sign of a new weakening trend, as the Bank of Japan has effectively shot all of its monetary arrows at this point and will have to go back to the drawing board on next steps.
The Greece situation may be moving toward a deal by Friday, certainly after the sudden thaw in the tone suggesting that the Greece side may be caving in on key demands. But let’s withhold judgment until the dotted line has been signed.
The way EUR/USD traded yesterday may speak volumes on the way the super-major pair may trade in the event we get full clarity on the negotiations between Greece and its creditors by Friday. First, we see a knee-jerk reaction higher, and then everyone realises that the market was sending EUR/USD higher anyway, even with all of the Greece uncertainty, and that an eventual deal might see the focus swing strongly back to the carry trade, short euro’s theme.
Anyway, judging from the monumental adjustment in US currency futures exposure (speculative shorts at the max were 227k and were reduced to 166k two weeks ago and 89k as of last Tuesday), there is likely much less of a restraint on shorting euro from a positioning perspective.
What Greece is doing to EUR/USD
EUR/USD ran as high as 1.1400 yesterday on the sudden thaw in Greece negotiations, but then fell like a tonne of bricks – a very interesting reaction pattern to the news flow. From a technical perspective, the bearish case picks up with a close below 1.1250, which begins to confirm the rejection of the attempts above 1.1385.
Today, the European PMI’s this morning may have little bearing on the proceedings unless they are exceptionally weak. Elsewhere, we have a couple of interesting central bank meetings in Turkey and Hungary as it looks like both EUR/HUF and EUR/TRY are trying to turn the corner back lower (again, isn’t it interesting that the Greece standoff seems to have been a major euro-supportive development).
No move is expected from the Turkish central bank, though guidance will be key. Hungary’s central bank is expected to shave another 15 basis points off its rate to bring the rate to 1.50%.
Later we’re on to the US data, including the new home sales data amid signs that the US housing sector has developed a real head of steam. The durable goods order numbers are a bit more interesting than usual as another strong reading after last month’s bounce could help add to the impression of the recovery regaining its strength, though the real US data of interest is up next week.
The G-10 rundown
USD: Looking firmer across the board, and with the potential for more to come on positive data points of almost any type.
EUR: The world is upside down as one wonders if the most negative EUR news would be a Greece deal as this would allow the market to get back down to the theme of central bank policy divergence. In any case, 1.1250 in EUR/USD looks like an important level on daily closes to keep the odds higher that we should maintain a downside focus in EUR/USD.
JPY: Doing its low-beta USD dance, weaker against a strengthening USD, but stronger in some of the crosses. 122.50 has proven a strong support level in USD/JPY and now we look at whether the pair can mount a serious charge higher to challenge 125.00 again of whether we are re-entering another bout of range trading.
GBP: First support in GBP/USD at 1.5815 giving way, but mostly due to USD strength, as EUR/GBP is back lower after yesterday’s run-up, encouraging the bears to get involved again for a test of the cycle low and possibly beyond to the symbolic 0.7000 level.
CHF: Surprise to see the lack of movement despite all of the noise on Greece – a sign that the bears may need to exercise more patience. We won’t know for sure until a deal is signed/not signed, but reaching for the pause button on the bearish outlook for the franc at the moment.
AUD: Weakening further, as AUD/USD trades more deeply back into the range. The bias is toward an eventual test beyond cycle lows, but we’ve been stuck in this range for so long and may need a catalyst to take us there.
CAD: USD/CAD challenging that key layer of resistance again that lies just above 1.2350 as we keep the focus higher after the recent bullish reversal there.
NZD: Remains weak, with no discernible reason to expect anything but further weakness – watching the 1.1300 area in AUD/NZD as this was the 2014 high and wondering if NZD/USD has potential toward 0.6500.
SEK: EUR/SEK stuck in the lower range now, and the absence of a bounce a strong risk appetite tilt the bias for a test of the 9.17 support, which could open up for the next layers of support toward 9.05/9.10.
NOK: Doing quite well, given the very dovish Norges Bank last week, as we focus on whether the EUR/NOK range holds below 8.87 and even flashes a green light to the bears with a move below the 8.70 level again.
Economic data highlights
- Japan Jun. Preliminary Markit/JMMA Manufacturing PMI out at 49.9 vs. 50.5 expected and 50.9 in May
- China Jun. Preliminary HSBC Manufacturing PMI out at 49.6 vs. 49.4 expected and 49.2 in Apr.
Upcoming economic calendar highlights (all times GMT)
- Eurozone Jun. Preliminary Markit Manufacturing/Services PMI (0800)
- UK Jun. CBI Trends in Total Orders/Selling Prices (1000)
- Turkey Central Bank rate decision (1100)
- Hungary Central Bank rate decision (1200)
- US Fed’s Powell (FOMC Voter) to Speak (1230)
- US May Durable Goods Orders (1230)
- US Jun. Preliminary Markit Manufacturing PMI (1345)
- US May New Home Sales (1400)
- US Jun. Richmond Manufacturing Index (1400)
- Japan Bank of Japan Meeting Minutes (2350)
- Japan Jun. Small Business Confidence (0500)