Less then stellar data from both China and Japan this morning leaves Asia nursing a Friday morning headache, and highlights the challenges ahead for the regions two largest economies.
China Manufacturing PMI missed badly to the downside at 48.6, a 4 month low. China continues its difficult re-balancing act. Paring corporate debt and shifting resources from the old to the new economy, whilst minimizing economic dislocation against the back drop of of slowing international export market and consumption at home. Good luck with that.
The PBOC set the Yuan midpoint at a three day high of 6.6496, continuing their aggressive trend of higher fixes post Brexit. USD/CNH sits around 6.6700 with muted trade due to a Hong Kong holiday today. Support sits at 6.6500 and 6.5800 with resistance at 6.7100 post Brexit high.
Over in Japan the Tankan Survey came in slightly under expectations. Much more significantly, both CPI(ex food) at -0.4% and Household Spending at -1.1% missed to the downside. This will no doubt leave the BoJ and Ministry of Finance scratching their heads, as just how they will achieve their QE inflation target by 2017. I’m scratching mine as well.
No doubt there will being increasing clamoring around the street for more easing but one wonders what they have left in the tank with the BOJ’s balance sheet now North of 80% of GDP. The market is clearly wondering the same thing as USD/JPY has been unable to rally with the rest of USD/Asia and the commodity currencies.
Technically there is the potential for a squeeze to the upside with trend line support on the hourly at 102.60 with post Brexit low at 99.00 key support. Topside resistance at 103.40 with the 106.00 area above that should it break. One would imagine that any progress above there would be hard work though.
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With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes.
He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays.
A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia as well as in leading print publications including the New York Times and The Wall Street Journal, among others.
He was born in New Zealand and holds an MBA from the Cass Business School.