Trading remains rather subdued in the forex markets today. Dollar is trying to regain some ground after last week’s steep selloff. The stronger than expected ISM manufacturing is giving the greenback extra fuel. But the recovery looks nothing more than a recovery so far, except versus Yen. Sterling is also under some pressure after PMI disappointment. But loss is limited. Yen, on the other hand, is trading weakly, in particular to greenback, despite an upbeat Tankan report. The biggest news from Japan was the humiliating defeat of Prime Minister Shinzo Abe’s fulling LDP in Tokyo’s local election. Meanwhile, Canadian Dollar is staying firmly in tight range as WTI crude oil is extending it’s rebound to as high as 46.65.
Sterling mildly lower as PMI manufacturing dropped
Sterling trades mildly lower today after PMI disappointment. UK PMI manufacturing dropped to 54.3 in June, down from 56.3 and missed expectation of 56.3. Markit noted that "while the survey data add to signs that the economy is likely to have shown stronger growth in the second quarter, further doubts are raised as to whether this performance can be sustained into the second half of the year." There are talks after the releases that the economy data could paint a picture that counter the view of the BoE hawks. But judging from reactions in the markets, traders don’t buy into this view.
Economist said Eurozone PMIs exaggerated
Eurozone PMI manufacturing was finalized at 57.4 in June, revised up from 57.3. The global economist and managing director at UBS Wealth Management Paul Donovan, interviewed by CNBC, criticized that the numbers point to 3.5 or 4% growth in Europe and that is wildly exaggerated. He pointed out that the PMI is a "sentiment indicator" and "not a real-world indicator." Also he said that the survey quality has been in decline in recent years. Also from Eurozone, Italy PMI manufacturing rose to 55.2 in June, up from 55.1. Eurozone unemployment rate was unchanged at 9.3% in May.
Also from from Europe, Swiss retail sales dropped -0.3% yoy in May. SVME PMI rose to 60.1 in June.
Japan large manufacturers sentiment hits 3 year high
Japan Tankan large manufacturers index jumped to 17 in Q2, up fro 12, and beat expectation of 15. That’s the highest reading in three years. Large manufacturers outlook improved to 15, up from 11, above expectation of 14. Non-manufacturing index rose to 23, up from 20, and met consensus. Non-manufacturing outlook rose to 18, up from 16, but missed expectation of 21. The survey was generally consistent with recent upgrade of economic assessment by BoJ. But still, the positive developments in the economy is not being translated into price pressure yet. And BoJ is far from stimulus exit.
Rebound in China manufacturing may be temporary
The Caixin China PMI manufacturing rose to 50.4 in June, up from 49.6 and beat expectation of 49.8. That’s back in expansion territory and was the highest level in three months. However, a CEBM Group economist noted in the accompany statement for the release that "based on the inventory trends and confidence around future output, the June reading was more like a temporary rebound, with an economic downtrend likely to be confirmed later."
Elsewhere, Australia TD Securities inflation rose 0.1% mom in June. Building approvals dropped -5.6% mom in May.
USD/JPY Mid-Day Outlook
Daily Pivots: (S1) 111.85; (P) 112.23; (R1) 112.73; More…
USD/JPY’s rise from 108.81 resumed by taking out 112.91 and reaches as high as 113.27 so far. The break of medium term channel resistance suggests that whole corrective pull back from 118.65 has completed at 108.12 already. Intraday bias is back on the upside for 114.36 resistance. Decisive break there should confirm this bullish view and target 118.65 again. On the downside, break of 111.72 support is needed to indicate short term topping. Otherwise, outlook will remain bullish in case of retreat.
In the bigger picture, the corrective structure of the fall from 118.65 suggests that rise from 98.97 is not completed yet. Break of 118.65 will target a test on 125.85 high. At this point, it’s uncertain whether rise from 98.97 is resuming the long term up trend from 75.56, or it’s a leg in the consolidation from 125.85. Hence, we’ll be cautious on topping as it approaches 125.85.
Economic Indicators Update
| GMT | Ccy | Events | Actual | Forecast | Previous | Revised |
|---|---|---|---|---|---|---|
| 23:50 | JPY | Tankan Large Manufacturers Index Q2 | 17 | 15 | 12 | |
| 23:50 | JPY | Tankan Large Manufacturers Outlook Q2 | 15 | 14 | 11 | |
| 23:50 | JPY | Tankan Non-Manufacturing Index Q2 | 23 | 23 | 20 | |
| 23:50 | JPY | Tankan Non-Manufacturing Outlook Q2 | 18 | 21 | 16 | |
| 23:50 | JPY | Tankan Small Mfg Index Q2 | 7 | 7 | 5 | |
| 23:50 | JPY | Tankan Small Mfg Outlook Q2 | 6 | 4 | 0 | |
| 23:50 | JPY | Tankan Small Non-Mfg Index Q2 | 7 | 6 | 4 | |
| 23:50 | JPY | Tankan Small Non-Mfg Outlook Q2 | 2 | 3 | -1 | |
| 00:30 | JPY | Manufacturing PMI Jun F | 52.4 | 52 | 52 | |
| 01:00 | AUD | TD Securities Inflation M/M Jun | 0.10% | 0.00% | ||
| 01:30 | AUD | Building Approvals M/M May | -5.60% | -1.30% | 4.40% | |
| 01:45 | CNY | Caixin PMI Manufacturing Jun | 50.4 | 49.8 | 49.6 | |
| 05:00 | JPY | Consumer Confidence Jun | 43.3 | 43.9 | 43.6 | |
| 07:15 | CHF | Retail Sales (Real) Y/Y May | -0.30% | -0.80% | -1.20% | |
| 07:30 | CHF | SVME PMI Jun | 60.1 | 56.3 | 55.6 | |
| 07:45 | EUR | Italy Manufacturing PMI Jun | 55.2 | 55.3 | 55.1 | |
| 07:50 | EUR | France Manufacturing PMI Jun F | 54.8 | 55 | 55 | |
| 07:55 | EUR | Germany Manufacturing PMI Jun F | 59.6 | 59.3 | 59.3 | |
| 08:00 | EUR | Eurozone Manufacturing PMI Jun F | 57.4 | 57.3 | 57.3 | |
| 08:30 | GBP | PMI Manufacturing Jun | 54.3 | 56.3 | 56.7 | 56.3 |
| 09:00 | EUR | Eurozone Unemployment Rate May | 9.30% | 9.30% | 9.30% | |
| 14:00 | USD | ISM Manufacturing Jun | 57.8 | 55 | 54.9 | |
| 14:00 | USD | ISM Prices Paid Jun | 55 | 58.5 | 60.5 | |
| 14:00 | USD | Construction Spending M/M May | 0.00% | 0.20% | -1.40% | -0.70% |
