Market Brief
Overnight, the Japanese yen was the best performer among the G10 complex. The JPY surged roughly 0.49% against the USD dollar amid better-than-expected inflation figures and Tankan report. However, the headline CPI kept sliding in May as it contracted 0.4%y/y after a contraction of 0.3% in the previous month but beat median forecast of -0.5%. The core gauge, which excludes fresh food and energy, matched expectations and printed at 0.6%m/m, below last month’s reading of 0.7%. The disappointing inflation data came on the back of a weak industrial production and lacklustre retail sales released earlier this week are building the case for more stimulus from the BoJ. Moreover, the Uk’s vote to leave the EU has bolstered the demand for the yen, putting at risk the faltering recovery and dampening the inflation outlook. USD/JPY dropped to 102.68 in Tokyo after testing 103.39 before the release of the inflation data. We maintain our call that the BoJ will ease further its monetary policy at its July meeting.
In China, the publication of the June PMI reports revealed further divergence between the official and the private survey. Indeed, the official manufacturing PMI printed flat at 50 in June, while the private gauge, the Caixin manufacturing PMI eased further in June, printing at 48.6 versus 49.2 previous reading and median forecast. This is lowest reading since February this year; we have to go back to February 2015 to find a reading above the 50 threshold that separates expansion from contraction. Finally, the official non-manufacturing PMI came in at 53.7, up from 53.1 in June. All in all, the data suggests that the Chinese economy is losing momentum again after sending some encouraging signs during the last few months. We there expect the government to gear up the implementation of measures aiming at stabilising the economy, while the PBoC will most likely have to adopt a more balanced approach in order to limit capital outflows. The PBoC set the daily USD/CNY fixing to 6.6496, up 0.28% from yesterday.
EUR/USD was trading slightly lower during the Asian session, sliding to 1.1072 from 1.1117 in the early session. Taking a step back, the pair continued to consolidate at around the 1.11 level, which corresponds to its 200-dma. We do not expect significant move in the short-term as the Brexit’s effects are being discounted. However, the release of next week’s NFP and the minutes of the June FOMC meeting could trigger some sharp moves.
Today traders will be watching retail sales and manufacturing PMI from Switzerland; PMIs from France, Spain, Germany, the euro zone, the UK, Brazil and the US; unemployment rate from Russia and the euro zone; industrial production from Brazil; ISM manufacturing and construction spending from the US.
Currency Tech
EUR/USD
R 2: 1.1479
R 1: 1.1428
CURRENT: 1.1099
S 1: 1.0913
S 2: 1.0822
GBP/USD
R 2: 1.3981
R 1: 1.3535
CURRENT: 1.3314
S 1: 1.3121
S 2: 1.3045
USD/JPY
R 2: 111.91
R 1: 106.84
CURRENT: 102.67
S 1: 99.02
S 2: 96.57
USD/CHF
R 2: 1.0328
R 1: 0.9956
CURRENT: 0.9763
S 1: 0.9522
S 2: 0.9444