ASIA session review: Dollar weakens before data

Data released:

01:45 GMT China HSBC Manufacturing PMI (Jun) Preliminar 50.8 49.7 49.4 

06:00 GMT Japan Bank of Japan Governor Kuroda Speech 

07:30 GMT Germany Markit Manufacturing PMI (Jun) Preliminar 52.4 52.5 52.3 

07:30 GMT Germany Markit Services PMI (Jun) Preliminar 54.8 55.7 56.0 

08:00 GMT EMU Markit Manufacturing PMI (Jun) Preliminar 51.9 52.2 53.4 

08:00 GMT EMU Markit PMI Composite (Jun) Preliminar 52.8 53.5 53.5 

08:00 GMT EMU Markit Services PMI (Jun) Preliminar 52.8 53.3 53.2

The dollar dropped before data this week economists said will show U.S. manufacturing and new home sales slowed, supporting the case for the Federal Reserve to hold rates near zero.

Today the preliminary reading of the China Purchasing Managers’ Index from HSBC Holdings Plc and Markit Ltd. for June climbed to 50.8, beating the median economist forecast of 49.7.

China’s economy will grow 7.4% in the April-June period from a year earlier, based on the median estimate in May. That would be the same pace as the first three months, which was the weakest in six quarters. Gross domestic product rose 7.7% in 2013 and 2012, down from an average 10.6% a year in the previous decade.

EURO

The shared currency is now weakening after advanced manufacturing and services PMI readings in France and Germany surprised investors to the downside. 

Preliminary German PMI Manufacturing grew to 52.4 points in June, from 52.3 points in May, but slightly below market consensus of 52.5 points. PMI Services slid to 54.8 points in June, following a 56.0 point reading the previous month and against expectations of a rise to 55.7.

Preliminary Eurozone PMI Manufacturing expansion slowed down to 51.9 in June, from 53.4 in May, while analysts expected less decline to 52.2. PMI Services slid to 52.8 in June, following a 53.2 point reading the previous month and against expectations of an increase to 53.3. PMI Composite dropped to 52.8, from 53.5 and against forecasts of remaining unchanged.

EUR/USD holds below $1.3600. Below $1.3520 support extends to $1.3500 (Jun 5 lows) and $1.3475 (Jan 31 lows). Initial resistance comes at $1.3640. Above resistance comes at Jun 6 highs on $1.3680, then - near $1.3730, with a stronger one - on $1.3770/80.

POUND

The UK pound remains near 6-year highs, having managed to close last week above the $1.7000 mark and underpinned by solid manufacturing data from China. 

The dollar continues to suffer after a FOMC meeting last week, which offered little indication the Fed will hike rates anytime soon, contrasting BoE's recent comments.

GBP/USD has failed to breack above $1.7060 (initial resistance) on Friday and retreated a bit. Above resistance comes at $1.7100 (Nov 1’2005 lows). Initial support comes at $1.7000 with a break under widens losses to $1.6920 (May 21 lows) and $1.6840 (Jun 6 high).

YEN

Yen recovered versus the dollar.

BOJ’s Kuroda said that BOJ won’t hesitate to make adjustments if needed:

-Japanese economy only halfway to BOJ’s price target;

-BOJ will continue easing until 2% inflation is stable;

-annual CPI growth likely to slow to around 1% through the summer before resuming uptrend from H2 FY 2014.

USD/JPY holds near session lows on Y101/80. Support comes at Y101.60/70 (Jun 12 lows) and Y100.80/70 Y100.80/70 (Feb 7 lows). Below losses may widen to Y99.50 (Nov 19’2013 lows). Above resistance comes at Y102.80 (Jun 4 high), extending to Y103.00 and Y103.40. Stronger one remains at Y104.30/80.

COMMODITY CURRENCIES

LOONY: The Canadian dollar rallied on Monday.

Canada’s fin min Oliver sees inflation in the 2% target:

-rates moving up moderately over the next 2-3 years;

-Canadian banking system the most robust and stable in the world;

-sees solid recovery in US and pretty positive” results from China;

-slow growth a concern especially in Europe.

He also added: 

-interest rate shock is unlikely and not the biggest threat to markets;

-does not see inflation as a coming problem;

-not especially worried about housing market but still a concern;

-consumer inflation contained;

-looking at inflation around 2%, a “pretty healthy” level;

-its ” pretty obvious” that CAD is affected by energy prices;

-not obvious that CAD strength suggests that there is a problem;

-weakness in Canadian exports reflect weak global economy.

DATA AHEAD

US data include Markit Manufacturing PMI and Existing Home Sales due at 13:45 GMT and 14:00 GMT respectively.

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