ASIA session review: Euro at 7-month high on Merkel win

Data released: 

01:45 GMT China HSBC Manufacturing PMI (Sep) Preliminar 51.2 50.1 

06:58 GMT France Markit Manufacturing PMI (Sep) Preliminar 49.5 50.1 49.7 

06:58 GMT France Markit Services PMI (Sep) Preliminar 50.7 49.3 48.9 

07:28 GMT Germany Markit Manufacturing PMI (Sep) Preliminar 51.3 52.2 51.8 

07:28 GMT GermanyMarkit Services PMI (Sep) Preliminar 54.4 53.1 52.8 

07:58 GMT EMU Markit Manufacturing PMI (Sep) Preliminar 51.1 51.8 51.4 

07:58 GMT EMU Markit PMI Composite (Sep)Preliminar 52.1 51.9 51.5 

07:58 GMT EMU Markit Services PMI (Sep)Preliminar 52.1 51.1 50.7 

The euro was near seven-month high against the dollar after Germany’s voters put Angela Merkel on course for the biggest election win since Helmut Kohl’s 1990 post-reunification victory. 

Merkel’s Christian Democratic bloc took 41.5% of the vote in yesterday’s election, to 25.7% for the Social Democrats of Peer Steinbrueck, according to results from all 299 districts. 

“This is a vote in favor of Merkel rather than a vote in favor of big changes,” said Steven Englander, Citigroup Inc.’s global head of G-10 currency strategy in New York. “It’s most likely Merkel will govern in a grand coalition with the Social Democrats, so that’s a slight euro positive because the government would be somewhat more friendly to the peripheral nations in the currency bloc.” 

On Friday St. Louis Fed President James Bullard told that a small tapering of bond purchases is “possible” at the Fed’s October meeting. Federal Open Market Committee voting member William C. Dudley is scheduled to speak today. 

EURO 

European Central Bank President Mario Draghi will speak in the European Parliament today. 

The euro climbed 4% this quarter versus the dollar, poised for its biggest advance since the first three months of 2011. 

Later in EU euro retreated following the disappointing results from the manufacturing sectors in France, Germany and the bloc as a whole. 

EUR/USD consolidates near $1.3540, below post FOMC highs on $1.3570. Strong resistance comes at $1.3600 (Feb 5 and 6 highs) with the stronger resistance is near yearly high on $1.3712. Initial support comes at $1.3420 (channel line from Sep 6). Below support is around Sep 13 lows on $1.3250. 

POUND 

The pound consolidates within the range since the last week and, likely, will hold in range before a key economic data released. 

GBP/USD trades at $1.6030 (also channel line from Sep 6). Below support comes at $1.5780 (Friday’s lows). Initial resistance is around recent highs on $1.6145. Above the resistance comes at $1.6280 (channel line). 

YEN 

The greenback fell against the yen as markets assess when the Federal Reserve will reduce the pace of its bond purchases. 

“Dollar-yen, for quite some time now, has been mainly driven by the Federal Reserve’s taper expectations,” said Sue Trinh, a Hong Kong-based senior currency strategist at Royal Bank of Canada. “There’s a lot of uncertainty as to where we stand with tapering.” 

RBC predicts the dollar will fall to Y92 by year-end. 

USD/JPY retreated to below Y99.00 from Fridaay’s highs on Y99.65. Initial suppport comes at Y98.60/50 (Sep 16 and 6 lows respectively), then - at Y97.80 (Sep 18 lows), extending to Y97.70 (trend line from Jun 13), then - at Y96.80 (Aug 27 lows). Above Fridaay’s highs resistance comes around Y100.00 (Sep 13 highs) and Y100.60 (Sep 11 highs). 

COMMODITY CURRENCIES: 

AUSSIE: Australia’s dollar rose after a Chinese manufacturing gauge was stronger than analysts had forecast. 

The HSBC report showed Chinese manufacturing activity at a six-month high in September to 51.2 compared with a final score of 50.1 in August. 

DATA PREVIEW: 

At 12:30 GMT US Chicago Fed National Activity Index (Aug) is expected. 

ECB President Draghi's Speech will begin at 13:00 GMT.

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