USD slightly lower ahead of US data

Market Brief

The Fed released the minutes of April’s FOMC meeting yesterday evening. We were expecting further details regarding the temporary factors but the minutes just indicate that there was deliberation about the temporary nature of the slowdown in growth and that members noted recurrent weakness of the first quarter over time. Therefore, unless the US released impressive data within the next three weeks, a June rate hike may be rules out. EUR/USD moved sharply following the release of the minutes but was unable to choose a direction. The single currency traded therefore in a volatile range between 1.1060 and 1.1150. A break of the key support standing at 1.1043 will pave the way toward 1.0880, then 1.07. A full batch of data is due today and will certainly trigger sharp moves.

Japan’s Markit preliminary manufacturing PMI printed higher than expected to 50.9 versus 50.3 (from 49.9 in April), indicating that the sector has returned to growth. The Nikkei reacted positively to the news, but the optimistic mood didn’t last as the Japan All Industrial Activity index estimated that the overall economic activity contracted 1.3%m/m in March. The data printed way below expectations as analysts were looking for a contraction of only 0.4%m/m. The Nikkei is up 0.03%. Yesterday, USD/JPY failed at breaking the resistance implied by the high of March 20. Overnight, the dollar consolidates against the yen after the sharp moves following the release of the Fed’s minutes.

China’s HSBC “flash” manufacturing PMI disappointed as it came in at 49.1 versus 49.3 but higher than April figure of 48.9 which was the lowest read since April 2014. Manufacturing activity is therefore shrinking as a read below 50 indicates a contraction. The PBoC already eased 4 times its monetary policy since the beginning of the year in an attempt to cushion the slowdown of the economy. The Shanghai composite is trading higher this morning, rising for a third straight day, up 1.35%. Hong Kong’s Hang Seng is about to close in negative territory for the second day in a row, down -0.31%.

In Australia, the S&P/ASX is up 0.93% while AUD/USD failed at breaking the support implied by the lows of early May standing at 0.79. Fresh boost will be needed to clear the area and open the road on the downside; strong data from the US this afternoon may be that trigger.

In Europe, equity futures are broadly lower in pre-session with the footsie down -0.10%, DAX down -0.23%, Euro Stoxx 50 down -0.16%, CAC down -0.18% and SMI down -0.18% as well. GBP/USD moved sideways in the Asian session, consolidating Tuesday’s sharp sell-off. UK retail sales are due this afternoon and are expected flat compared to last month at 0.2%m/m.

USD/CHF is having a hard time breaking the resistance implied by the highs from early May. On the upside, a strong resistance stands at 0.96 (Fib 50% on March-May sell-off) while a key support can be found at 0.9073 (lows from May 7 and 14).

Today traders will watch Markit Manufacturing PMI from Germany, France and Eurozone and consumer confidence from Eurozone; retail sales from UK; unemployment rate and tax collection from Brazil; Chicago Fed Nat activity index, initial jobless claims, Markit manufacturing PMI, Bloomberg consumer comfort and business expansion index, Philadelphia Fed Business outlook, existing home sales, leading index from the US.