CNY and US data at top of market’s agenda this week CNY and US data at top of market’s agenda this week CNY and US data at top of market’s agenda this week

CNY and US data at top of market’s agenda this week

Forex
John Hardy

Head of FX Strategy

We have a veritable whirlwind of crosscurrents at the moment on virtually all fronts. The trade war theme dominates for now, with this Friday seeing a large round of Chinese tariffs on $34 billion in US goods actually going into effect. The temperature with China is also rising with every uptick in USDCNY, which has seen its largest two-week surge higher since the 2015 devaluation move. At what level does the weaker CNY merit a Trump response and/or begin to destabilise global markets? The 6.70 area is the last notable technical resistance ahead of the 7.00 level. Elsewhere, Trump blasted the EU over the weekend for being “possibly as bad as China, just smaller”. And the EU has readied its own retaliatory tariffs.

Over in Germany, the chaos in the ruling CDU/CSU coalition continues to drive uncertainty domestically even as EU leaders managed a degree of solidarity at last week’s summit in agreeing on a framework for dealing with migrants on an EU-wide basis. The CSU head and interior minister Seehofer said that he offered to resign at a meeting over the weekend, but then decided to take back that offer as the two parties try to hash out a way forward. Chancellor Angela Merkel has more leverage after agreeing that deal last week, but the future of the CSU/CDU coalition still hangs in the balance.

Meanwhile in Italy, Lega’s leader Salivini has seized the initiative on every front and has declared the intention to support a coalition of EU-sceptic parties across the EU ahead of the May 2019 EU parliament elections. Next year, 2019, is shaping up as an important year for the EU’s fate. Italian yields, meanwhile, have calmed considerably in the wake of last week’s EU summit and the deal on migrants, with the 2-year BTP back down to 75 basis points from over 100 basis points mid-last week.

As well this week, we have a busy economic calendar, starting with the Reserve Bank of Australia tonight in Asia (see AUD comments below) and the Riksbank tomorrow in Europe. But if we can tear our eyes away from the USDCNY chart and Trump headlines, it’s the heavy US data calendar all week that deserves the most attention after we found out that core US PCE inflation in May hit 2.0% for the first time since early 2012. The Federal Open Market Committee minutes are set for release on Thursday due to the Wednesday Independence Day holiday. 

In Mexico, Obrador’s strong victory over the weekend is an important test for emerging markets as MXN is one of the most liquid EM currencies and a proxy for EM. The peso has done very well relative to EM peers in recent weeks as the market has backed away from its worst fears on what an Obrador “left populist” presidency may entail. Importantly, Obrador’s party may also gain both houses of the Mexican Congress, possibly setting up the most powerful government since the mid-1990s in terms of power to implement policy – but the final results will not be clear for days.

Chart: USDCNH
All eyes on the USDCNY this week, where the 6.70 level is the last local resistance area ahead of the cycle top at 7.00. 

The G-10 rundown

USD – USD strength eased as EURUSD has rejected attempts at the 1.1500 level, but not expecting anything but a firm message from the FOMC minutes on Thursday on the intent to continue hiking.

EUR – the euro dodged an immediate crisis last week with the summit agreement on migration, but the German coalition uncertainty continues and the European Central Bank has iced forward guidance. Meanwhile, the EU has perhaps the most to lose in a global trade war scenario and likes to play by the rule book rather than considering a realpolitik approach.

JPY – USDJPY is toying with the top of the range, but we’re only looking for notable JPY weakness if US rates lift all along the curve in the wake of this week’s data.

GBP
– sterling to continue struggling here and EURGBP remains clear of the recent range and above the 200-day moving average. Still, the massive overhead level is 0.9000, which hasn’t been breached since last summer.

CHF – the EU summit outcome provided EURCHF support, but uncertainties remain and not seeing potential for a major rally here. 1.1500-1.1450 an important downside pivot zone.

AUD -  the Reserve BAnk of Australia is not set to upgrade its outlook as Australia has everything to lose in a global trade war and China’s apparent devaluation move and we would expect the RBA to highlight escalating downside risks in line with the market’s waning expectations for eventual rate hikes. As well, Australia’s banks are tightening lending conditions after feeling the heat from regulators for prior practices and interbank funding costs have risen sharply this year.

CAD – USDCAD found support right near the old high from March of this year around 1.3125 – an important support if the greenback is to maintain the upper hand.

NZD – we are bearish on kiwi as long as the NZDUSD break of the sub-0.6800 range holds on the RBNZ’s dovish turn and rate spread developments. 

SEK – the Riksbank is up tomorrow and EURSEK is pushing on the last resistance area below 10.50 ahead of the cycle top near 10.70. The market is not looking for Riksbank surprises tomorrow – as Riksbank normalisation plans are a tough sell given EU and trade war risks.

NOK – EURNOK is pulling up above local resistance in a further sign that the Scandies remain out of favour.

Upcoming Economic Calendar Highlights (all times GMT)
0715 – 0800 – Eurozone Jun. Final Manufacturing PMI
0830 – UK Jun. Manufacturing PMI
0900 – Euro Zone May Unemployment Rate
1330 – ECB’s Praet to speak
1400 – US Jun. ISM Manufacturing
0430 – Australia RBA Cash Target

 

Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.