Risk aversion carries on in Asian session today, after the massive selloff in the US overnight. But selling has some what eased ahead of the weekend. In the currency markets, Yen and Swiss Franc remain the strongest ones for the week, even though both are paring some gains. Dollar and Euro are racing to be the next strongest with Dollar having a mild upper hand. Australian Dollar is the weakest for the week, followed by Canadian and then New Zealander.
Technically, the anticipated risk pull back should have finally started. AUD/USD has taken out 0.6898 minor support. AUD/JPY broke 74.40 minor support. USD/CAD broke 1.3572 minor resistance while CAD/JPY broke 79.95 support this week. GBP/USD also broke 1.2618 minor support to confirm short term topping. The question now is whether EUR/USD would break 1.1241 minor support to align the outlook with other Dollar pairs. Meanwhile, in spite of recovery, we’re not expecting bottoms in USD/CHF and USD/JPY.
In Asia, Nikkei is currently down -0.71%. Hong Kong HSI is down -1.30%. China Shanghai SSE is down -0.38%. Singapore Strait Times is down -1.49%. Japan 10-year JGB yield is up 0.0011 at 0.006. Overnight, DOW dropped -6.90%. S&P 500 dropped -5.89%. NASDAQ dropped -5.27% to close at 9492.73, lost 10k handle. 10-year yield dropped -0.095 to 0.653.
DOW in third leg of medium term correction after -6.9% fall
DOW tumbled sharply overnight by -1861.82 pts or -6.90% to close at 25128.17, near to day low. A short term top was formed at 27580.21 without a doubt. Our preferred view is that rebound from 18213.65 is the second leg of the medium term corrective pattern from 29568.57, which is likely completed.
Immediate focus is now on support zone between 38.2% retracement of 18213.65 to 27580.21 at 24002.18 and 55 day EMA (now at 24886.88). Firm break there will affirm our view and argue that the third leg of the consolidation has started. Deeper fall should then be seen to 61.8% retracement at 21791.67 and below. Nevertheless, rebound from the support zone could retain near term bullishness, for another rise through 27580.21 before topping.
HSI gapped down on risk aversion, but selling eased
Risk aversion continues in Asian session today with Hong Kong HSI gapped down and hit as long as 23895.03. But the index then recovered as selling eased somewhat, down -1.3% only after morning session. Prior rebound to 25303.77 was a surprise to us but the overall view isn’t changed. Price actions from 21139.26 are seen as a corrective pattern. The question now is whether such correction has completed. Focus will be on 22519.73 support for the next week or two. Firm break there would pave the way to 21139.26 and below, as larger down trend resumes.
Japan Aso: We’ve succeeded in putting a floor on the economy
Japan Finance Minister Taro Aso told the parliament today that “we’ve succeeded in putting a floor on the economy, which seems to have hit bottom. Looking ahead, “how strong the recovery will be depends not just on domestic conditions but overseas developments.”
For now, the conditions surrounding the economy will remain “severe” for the time being. However, Aso rebuffed the idea of another set of fiscal stimulus. He said, “we first have to see how the measures we’ve taken so far affect the economy.”
New Zealand BusinessNZ PMI recovered to 39.7, negative tone remains evident
New Zealand BusinessNZ Performance of Manufacturing Index rose to 39.7 in May, up from April’s 25.9. Looking at some details, productions improved notably from 19.1 to 38.4. New orders rose from 16.9 to 40.0. Finalized stocks rose from 37.7 to 41.3. Deliveries rose form 25.2 to 41.1. However, employment edged down from 41.1. to 39.4. Also, all components, including the headline index, remains below 50.
BNZ Senior Economist, Craig Ebert said that “still, a negative tone remains evident in the fact that, even with its bounce in May, the NZ PMI merely got back to the sort of levels in sank to during the 2008/09 recession.”
UK GDP, productions and trade balance will be the major focuses in European session. Eurozone will also release industrial production. Later in the day, US will release import price index and U of Michigan consumer sentiment.
AUD/USD Daily Report
Daily Pivots: (S1) 0.6795; (P) 0.6899; (R1) 0.6959; More…
AUD/USD’s break of 0.6898 minor support suggests short term topping at 0.7064, after failing to sustain above 0.7031 resistance. Intraday bias is turned back to the downside. Deeper pull back would be seen to 38.2% retracement of 0.5506 to 0.7064 at 0.6469. On the upside, firm break of 0.7031/64 is needed to confirm rise resumption. Otherwise, risk will now stay mildly on the downside in case of recovery.
In the bigger picture, the firm break of 0.6826 (2016 low) now suggests that 0.5506 is a medium term bottom. Rebound from there is likely correcting whole long term down trend form 1.1079 (2011 high). Further rally would be seen to 55 month EMA (now at 0.7326). This will remain the preferred case as long as it stays above 55 week EMA (now at 0.6721).
Economic Indicators Update
|22:30||NZD||BusinessNZ Manufacturing Index May||39.7||26.1|
|04:30||JPY||Industrial Production M/M Apr F||-9.10%||-9.10%|
|06:00||GBP||GDP M/M Apr||-18.70%||-5.80%|
|06:00||GBP||Industrial Production M/M Apr||15.00%||-4.20%|
|06:00||GBP||Industrial Production Y/Y Apr||-19.30%||-8.20%|
|06:00||GBP||Manufacturing Production M/M Apr||-15.00%||-4.60%|
|06:00||GBP||Manufacturing Production Y/Y Apr||-19.90%||-9.70%|
|06:00||GBP||Index of Services 3M/3M Apr||-2.00%||-1.90%|
|06:00||GBP||Goods Trade Balance (GBP) Apr||-11.0B||-12.5B|
|08:30||GBP||Consumer Inflation Expectations||3.00%|
|09:00||EUR||Eurozone Industrial Production M/M Apr||-20.00%||-11.30%|
|12:30||CAD||Capacity Utilization Q1||78.30%||81.20%|
|12:30||USD||Import Price Index M/M May||-0.20%||-2.60%|
|13:00||GBP||NIESR GDP Estimate May||-11.80%|
|14:00||USD||Michigan Consumer Sentiment Index Jun P||75||72.3|