Broad-based US dollar strength continued to remain the underlying theme in Asia this Wednesday, as Treasury yields cheered the US-China trade progress and US budget and debt ceiling deal. The Asian markets tracked the Wall Street higher following upbeat earnings results and amid trade optimism. Meanwhile, the recovery in the safe-haven Gold faltered amid a better risk environment.
Amongst the G10 and EM currencies, the USD/JPY pair stalled its upside amid escalating South Korea-Japan trade row and poor Japanese flash manufacturing PMI. The Aussie hit 2-week lows near 0.6975 region, sold-off into earlier RBA rate cut calls and weak Australian manufacturing PMI data that underscored labor market weakness. The Kiwi traded on the back foot around the 0.67 handle, uninspired by mixed New Zealand trade data. The Loonie traded virtually flat around 1.3140 level, divided between higher oil prices and greenback strength.
Meanwhile, the EUR/USD pair dropped to two-month lows near 1.1140 region and remained vulnerable amid increased odds of European Central Bank (ECB) monetary policy easing and ahead of the key macro data. The Cable held the lower ground amid Brexit anxiety, as markets watch out for UK PM Johnson’s Brexit plans.
Main Topics in Asia
Iran vows to secure Strait of Hormuz, urges diplomacy – Reuters
NZ June trade balance arrived as June: 365m (expected +100m) M/M
Is the ‘special’ U.S.-U.K. relationship dying out? - Time
S. Korean IndustryMin urges Japan to cancel plan to remove the South from white list
Japan’s Suga: Govt can't comment on intentions of Russia, China entering Japan’s air space
Global ratings appraisers: Japan's trade curbs will benefit no one – S. Korean FinMin
Nikkei hits three-week high, Asian stocks rise on US-China trade developments
Gold stops further declines amid lack of fresh drivers, ongoing geopolitical tensions
WTI unable to sustain the $57 handle in Asia, eyes on 23.6% Fibo support
Key Focus Ahead
Markets brace for a busy EUR macro calendar following two back-to-back days of thin-showing, as the Euro are Flash Services and Manufacturing PMIs (dropping in from 0715 GMT) will dominate ahead of Thursday’s ECB monetary policy decision.
Also, in focus, remains the Eurozone credit growth data while the UK docket sees the release of the second-tier BBA Mortgage Approval data. The UK data is likely to have virtually no impact on the Pound, as the Brexit and UK political updates will continue to drive the GBP markets, with risks skewed to the downside.
The NA session is also a busy one, with the US Markit Flash Services and Manufacturing PMIs due on the cards at 1400 GMT alongside the new home sales report. The US Govt’s Energy Information Administration (EIA) will publish the weekly fuel stockpiles data at 1430 GMT. Markets will also stay focused on any developments surrounding the Middle East geopolitical tensions and US-China trade talks for fresh trading incentives.
EUR/USD: On the defensive ahead of German and Eurozone preliminary PMIs
EUR/USD is looking south with a flag breakdown on the technical charts. The EUR could drop to 1.1107, as suggested by the flag breakdown, if the German PMI matches or prints well below estimates, bolstering the case for a European Central Bank rate cut.
GBP/USD: Bears hold the reins amid UK politics/Brexit pessimism
Boris Johnson’s victory in the Tory leadership race fuelled no-deal Brexit fears and resulted in several resignations of key lawmakers. The same stretched the GBP/USD pair’s south-run on the 1.24 handle heading into the London open.
Eurozone PMI Preview: Looking ahead to Lagarde
EMU manufacturing PMI in contraction for five months. Services and Composite PMI’s have improved slightly this year. Euro could weaken from ECB policy prospect.
GBP: Real and present danger of Johnson's no-deal Brexit - FT
An opinion piece carried by the Financial Times (FT) on Wednesday, highlights the key risks to the British currency following Johnson’s appointment as the new and his hardline stance on the Brexit deal.
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