The US dollar stabilised today after being buoyed by hawkish Federal Open Market Committee (FOMC) minutes and a rise in US rates. Despite this, the greenback has softened against all G10 currencies.
The stronger eurozone Purchasing Managers' Index (PMI) masks divergences between Germany and France but maintains the recovery narrative. In China, the People's Bank of China (PBOC) set the dollar reference rate at its highest since January, adding pressure to the yuan.
US index futures, particularly the NASDAQ, are up thanks to favorable guidance from Nvidia. Most Asia-Pacific equity markets rallied, led by Japan and India, with Chinese and Hong Kong indices rising over 1%. In contrast, South Korean and Australian indices eased.
European stocks, represented by the Stoxx 600, are rising for the first time since Monday. The 10-year US Treasury yield is nearly unchanged, while gold declined for the third session, approaching $2355. July WTI crude oil rebounded from yesterday's loss, potentially marking its first advance this week.
Today's Economic Calendar
Weekly Jobless Claims: Elevated claims are attributed to school employees in California and Illinois.
New Home Sales: Expected to pull back after an 8.8% surge.
Preliminary May PMI: Expected to slip from 51.3 in April to 51.0.
Market Trends and News
Key Industry Trends
Japan and Australia: Japan's Q1 2024 economic contraction exceeded expectations, but recovery is underway. The composite PMI increased slightly to 52.4. The Bank of Japan's gradual policy normalization suggests more rate hikes, with a 10 bp hike priced in for July. Australia's composite PMI slowed to 52.6, with manufacturing unchanged and services slowing slightly.
Strategic Developments
China: The PBOC's higher dollar reference rate is significant amid the dollar's strength and yen's weakness, pushing the offshore yuan to CNH7.2580.
Europe: The eurozone PMI supports a recovery narrative, with the composite PMI at 52.2 in May, the best since May 2023. Germany's PMI improved, though manufacturing remains below 50. France's composite PMI fell below 50 due to a services slowdown. The ECB is likely to cut rates in June, with another cut anticipated in Q3.
UK: After strong Q1 growth, the UK's May composite PMI ticked lower to 52.8. The market anticipates a rate cut by November, with a weaker retail sales report likely to steady nerves.
Forex Latest
Forex: The dollar's rise to nearly JPY156.90 suggests a cautious market approaching the JPY157 area, potentially targeting JPY158.
The Australian dollar's drop below $0.6650 suggests a steadying around $0.6615-$0.6630.
The euro's losses hint at technical resistance around $1.0855-$1.0860, with potential support around $1.0785. Sterling may head lower towards $1.2550-$1.2600.
Trading Ideas
USD/JPY: A break above JPY157 could target JPY158. Traders should watch for intervention signals.
AUD/USD: Support around $0.6580 could present buying opportunities if the pair steadies.
EUR/USD: Technical resistance near $1.0860 could cap gains. A close below $1.0785 suggests further downside.
GBP/USD: Watch for a break below $1.2680-$1.2700 to confirm a potential top, targeting $1.2550-$1.2600.
USD/CAD: A move above CAD1.37 could indicate a bullish pattern, targeting CAD1.3720-50.
Summary and Engagement
Key Takeaways:
The dollar stabilised but softened against G10 currencies.
Strong eurozone PMI supports recovery despite Germany-France divergence.
Favorable Nvidia guidance boosts US index futures.
Japanese and Australian economies show resilience despite mixed PMI results.
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