Dollar is back under pressure following weakness in US stocks and yields overnight. But it remains largely in range, except versus Yen. Indeed, Yen buying seems to be picking up momentum again, in tandem with steep decline in Nikkei in Asian session. But risk aversion is having little impact on Australian Dollar, which ignores weaker than expected job data and strengthens broadly. Bond markets in Europe and US could guide the next move in the currency markets ahead.

Technically, USD/JPY’s break of 107.79 minor support suggests resumption of fall from 108.99. Break of 107.53 should bring retest of 106.78 low. EUR/JPY is set to test 120.78 and break will resume larger fall from 127.50, to 118.62 low. GBP/JPY is on track to 131.51 low. AUD/USD recovered after drawing support from 4 hour 55 EMA, maintaining near term bullishness. Focus is back on 0.7047 resistance today.

In Asia, Nikkei is down -1.74%. Hong Kong HSI is down -0.49%. China Shanghai SSE is down -0.65%. Singapore Strait Times is down -0.30%. Japan 10-year yield is down -0.0081 at -0.133. Overnight, DOW dropped -0.42%. S&P 500 dropped -0.65%. NASDAQ dropped -0.46%. 10-yer yield dropped -0.061 to 2.061.

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Australian employment grew 0.5k, unemployment rate unchanged at 5.2%

Australia employment grew just 0.5k in June, below expectation of 9.1k. Full-time jobs increased 21.1k while part-time jobs decreased -20.6k. Unemployment rate was unchanged at 5.2% with participation rate steady at 66.0%.

ABS Chief Economist Bruce Hockman said, “Australia’s participation rate was at 66 per cent in June 2019, which means nearly two of every three people are currently participating in the labour market. The participation rate for 15 to 64 year olds was even higher and closer to four out of every five people.”

Australian NAB quarterly business confidence improved, but likely short-lived

Australia NAB quarterly Business Confidence index rose from 0 to 6 in Q2. Current Business Conditions index dropped from 4 to 1. Next 12 months Business Conditions index rose from 22 to 23. Next 12 months Capex Plans rose from 22 to 24.

Alan Oster, NAB Group Chief Economist said the down tend in conditions continued. And, the quarterly survey has now show a below average reading, for the first time since 2014. The decline in conditions suggests “business sector has lost significant momentum over the past year”, and “we are unlikely to see a substantial pickup in growth in the Q2 national accounts”.

On the other hand, “the strong lift in confidence appears to be related to the outcome of the Federal election, with the bulk of the survey conducted post election day and also around the time of firming expectations of rate cuts”. But such lift should be short-lived as already shown in the June monthly business survey.

Japan’s export dropped for the seventh straight month

In non seasonally adjusted terms, Japan exports dropped -6.7% yoy to JPY 6.585T in June. That’s the seventh straight month of decline. Imports dropped -5.2% yoy to JPY 5.995T. Trade surplus came in at JPY 0.589T.

Looking at some details, exports to China dropped -10.1 yoy and imports dropped -5.3% yoy. That’s the fourth straight month of decline in exports to China. Exports to US rose 4.8% yoy while imports dropped -2.5% yoy. That’s the ninth straight month of increase in exports to US.

In seasonally adjusted terms, exports rose 4.8% mom to JPY 6.554T in June. Imports dropped -4.4% mom to JPY 6.568T. Trade deficit came in at JPY -0.014T.

Fed’s Beige Book: Outlook generally positive for the coming months

Fed’s Beige Book noted that outlook generally was “positive for the coming months” with expectations of “continued modest growth”. Though, there were “widespread concerns about the possible negative impact of trade-related uncertainty”.

Employment grew at a “modest pace” but “slightly slower” than previous reporting period. Compensation grew at a “modest-to-moderate pace” but some contacts “emphasized significant increases in entry-level wages”.

Rate of price inflation was “stable to down slightly” from prior period. Districts generally saw “some increase in input costs, stemming from higher tariffs and rising labor costs”. However, the ability to pass on to final prices was “restrained by brisk competition”.

Looking ahead

UK retail sales will be the main focus in European session while Swiss trade balance will also be featured. Later in the day, US will release Philly Fed survey, jobless claims and leading index.

USD/JPY Daily Outlook

Daily Pivots: (S1) 107.81; (P) 108.07; (R1) 108.20; More…

Intraday bias in USD/JPY is turned to the downside with break of 107.79 temporary low. Corrective rebound from 106.78 should have completed at 108.99, after rejection by 55 day EMA. Break of 106.78 support will resumer larger decline from 112.40 to retest 104.69 low. On the upside, break of 108.99 resistance is needed to confirm resumption of rebound from 106.78. Otherwise, risk will remain on the downside in case of recovery.

In the bigger picture, decline from 118.65 (Dec 2016) is still in progress, with the pair staying inside long term falling channel. Break of 104.62 will target 100% projection of 118.65 to 104.62 from 114.54 at 100.51. For now, we’d expect strong support above 98.97 (2016 low) to contain downside to bring rebound. In any case, break of 112.40 is needed to the first serious sign of medium term bullishness. Otherwise, further decline will remain in favor in case of rebound.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:50 JPY Trade Balance (JPY) Jun -0.01T -0.14T -0.61T -0.62T
01:30 AUD Employment Change Jun 0.5K 9.1K 42.3K 45.3K
01:30 AUD Unemployment Rate Jun 5.20% 5.20% 5.20%
01:30 AUD NAB Business Confidence Q2 6 -1
06:00 CHF Trade Balance (CHF) Jun 3.21B 3.41B
08:30 GBP Retail Sales Inc Auto Fuel M/M Jun -0.30% -0.50%
08:30 GBP Retail Sales Inc Auto Fuel Y/Y Jun 2.60% 2.30%
08:30 GBP Retail Sales Ex Auto Fuel M/M Jun -0.20% -0.30%
08:30 GBP Retail Sales Ex Auto Fuel Y/Y Jun 2.60% 2.20%
12:30 CAD ADP Payroll Jun -16.0K
12:30 USD Philadelphia Fed Business Outlook Jul 5 0.3
12:30 USD Initial Jobless Claims (JUL 13) 216K 209K
14:00 USD Leading Index Jun 0.10% 0.00%
14:30 USD Natural Gas Storage 72B 81B

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