Asia Mid-Session Market Update: RBA meeting minutes reinforce neutral stance; PBOC reduces OMO purchases and weakens Yuan fix

US Session Highlights

(US) Fed’s Dudley (dove, FOMC voter): Confident that the current expansion has quite a long way to go; generally pleased with US economy

(MX) US Commerce Sec Ross: neither Mexico nor Canada are currency manipulators - Bloomberg interview

UPS establishes new surge pricing surcharge for Nov-Dec residential packages, large packages and packages over maximum limits

(US) Senate Democrats reportedly plan legislative slowdown over lack of disclosure and debate of GOP health care bill - press

Stock markets regained steam today as techs led the way in Asia and Europe, continuing into the US session. Both the Dow and S&P reached new all-time highs, with closes at 21,528 and 2,453. For the S&P, the best performing sector was technology, gaining 1.5%, while the Energy sector lost 0.8% on the back of continued weakness in crude oil prices.

US markets on close: Dow +0.7%, S&P500 +0.8%, Nasdaq +1.4%

Best Sector in S&P500: Technology

Worst Sector in S&P500: Energy

Biggest gainers: PKI +6.5%; NAVI +5.8%; MNK +4.7%

Biggest losers: EQT -9.0%; RRC -5.1%; FTR -5.0%

At the close: VIX 10.4 (-0.1pts); Treasuries: 2-yr 1.36% (flat), 10-yr 2.19% (+3bps), 30-yr 2.79% (+1bps)

US movers afterhours

TDOC Said to acquire medical consultation business Best Doctors for $375M in cash and $65M in stock - press; -0.8% afterhours

RS Cuts Q2 $1.30-1.40 v $1.59e (prior $1.50-1.60); -6.6% afterhours

Politics

(CN) China President Xi: "Higher education must adhere to correct political orientation" - press

(DE) Germany's Social Democratic Party said to plan €15B in tax cuts if elected - German press

Key economic data

(AU) AUSTRALIA Q1 HOUSE PRICE INDEX Q/Q: 2.2% V 2.2%E; Y/Y: 10.2% V 8.9%E

(AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: 112.4 v 112.9 prior

(NZ) NEW ZEALAND JUNE ANZ CONSUMER CONFIDENCE INDEX: 127.8 V 123.9 PRIOR; M/M: +3.1% V +1.8% PRIOR

Notes and Observations

Asia indices mixed with Nikkei225 leaning the way on weaker JPY; USD/JPY pair rose to 3-week highs above 111.70 amid comments from FOMC voting doves Dudley and Evans talking up the extension of current recovery.

RBA polity meeting minutes further reinforced the central bank is on hold, even though fixed income markets priced in some 20% of a rate cut this year. RBA noted improvement in global economic conditions and sustained property construction investment in China.

PBoC open market operations was notably reduced to CNY10B, but the Yuan fix was also the weakest since last month. Separately, CBRC bank regulator official warned that risks in the banking sector may be exposed by economic downturn.

Speakers and Press

China

(CN) Fitch: China economic growth to fall slightly below 6.0% in 2018 and 2019 - press

(CN) China insurance regulator (CIRC)'s Huang: May YTD insurance premiums +26% y/y; Some insurers ability to pay out on claims were impaired by an overstatement of their capital

(CN) China Banking Regulator (CBRC) Vice Chairman Wang Zhaoxing: Bank capital adequacy still at high level, but risks may be exposed during economic downturn

(CN) PBOC Gov Zhou: Global economy still has uncertainties

Australia/New Zealand

(AU) Australia PM Turnbull: To implement gas regulations affecting exports, effective July 1st, 2018

Korea

(KR) South Korea military planning to conduct joint drills with US B-1B bombers today as part of scheduled exercises - press

Asian Equity Indices/Futures (00:00ET)

Nikkei +1.2%, Hang Seng -0.1%, Shanghai Composite +0.1%, ASX200 -0.5%, Kospi flat

Equity Futures: S&P500 +0.1%; Nasdaq +0.2%, Dax +0.2%, FTSE100 +0.2%

FX ranges/Commodities/Fixed Income (00:00ET)

EUR 1.1140-1.1160; JPY 110.50-111.80; AUD 0.7585-0.7605; NZD 0.7220-0.7240

Aug Gold flat at 1,247/oz; Aug Crude Oil +0.1% at $44.45/brl; July Copper -0.4% at $2.58/lb

(CN) PBOC SETS YUAN MID POINT AT 6.8096 V 6.7972 PRIOR; Weakest Yuan fix since May 31st

(CN) Offshore Yuan overnight Hibor rate falls to 8-moth low

Asia equities notable movers

Australia

Tatts (TTS) +4.0%; Tabcorp bid for Tatts has been cleared by Australia regulators; Tabcorp will need to sell Odyssey Gaming unit in Queensland

Oroton (ORL) +4.4%; Gives strategic review: Certain parties expressed interest in its strategic options including sale or recapitalization; Affirms FY17

Scentre Group (SCG) -2.5%; Morgan Stanley Cuts SCG.AU to Underweight from Overweight

Japan

Askul (2678) +9.2%; Guides FY16/17 net ¥1B, -81% y/y; Op ¥8.8B v ¥8.0B prior guided; Rev ¥335.9B v ¥335.0B prior guided

Sharp (6753) +6.4%; To apply for TSE Section 1 listing on June 29th

Gree (3632) +6.3%; Guides FY17 Net ¥11B v ¥13Be (prior ¥15B); due to ¥3.8B writedown

Hong Kong

Bloomage BioTechnology Corp (963) +7.6%; Gets privatization offer at HK$16.30/shr from Grand Full Development

Century Ginwa Retail Holdings (162) -5.3%; Guides FY17 net loss CNY352M v profit y/y

Sino Propser (766) -8.5%; Profit warning

EUR/USD - 1.1151

Most recent candlesticks pattern   : N/A

Trend                      : Near term down

Tenkan-Sen level              : 1.1153

Kijun-Sen level                  : 1.1177

Ichimoku cloud top             : 1.1186

Ichimoku cloud bottom      : 1.1178

Original strategy  :

Sell at 1.1235, Target: 1.1135, Stop: 1.1270

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 1.1185, Target: 1.1085, Stop: 1.1220

Position : -

Target :  -

Stop : -

The single currency met resistance at 1.1213 and retreated quite sharply from there, suggesting the rebound from 1.1132 has ended there and retest of said support would be seen, however, break there is needed to confirm recent decline has resumed and extend weakness to previous support at 1.1109, a drop below this level would encourage for subsequent fall to 1.1075-80 which is likely to hold on first testing.

In view of this, we are looking to sell euro on recovery as 1.1185-90 should limit upside. Only above 1.1213-14 (said resistance and 50% Fibonacci retracement of 1.1296-1.1132)  would defer and risk a stronger rebound to 1.1230-35 (61.8% Fibonacci retracement) but upside should be limited to 1.1260-70, bring another decline later.

Daily Pivots: (S1) 110.96; (P) 111.27; (R1) 111.84; More...

USD/JPY's rally continues today and breaches 111.70 resistance. Intraday bias remains on the upside for near term channel resistance (now at 113.02). Sustained break there will suggest that whole pull back from 118.65 has completed at 108.12 already. In such case, further rise should be seen to 114.36 resistance for confirmation. On the downside, below 110.63 minor support will turn intraday bias neutral. Break of 108.81 will extend the fall from 118.65 through 108.12 low before completion.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. It's uncertain whether it's completed yet. But in case of another fall, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77 to bring rebound. Overall, rise from 75.56 is still expected to resume later after the correction from 125.85 completes.

Dollar rose mildly overnight but strength was so far limited. Comments from Fed officials were mixed and provided little guidance to the greenback. Meanwhile, Japanese Yen trades broadly lower on solid risk appetite and recovery in yields. DOW and S&P 500 surged to record close at 21528.99 and 2453.46 respectively. Nikkei followed and gains 0.81% to 20230.41. US 10 year yield recovered by adding 0.033 to 2.190, but it's still limited below 2.229 resistance. Similarly, dollar index is held below 97.77 resistance. EUR/USD is also staying above 1.1109 support. There is no change in Dollar's bearish trend yet.

Mixed comments from Fed officials

Comments from Chicago Fed President Charles Evans suggested he could lean towards waiting until the of the year to decide whether to raise interest rate again. He noted that "I don't see why we would not be served to allow more time to wait." He said that the current environment of low inflation "supports very gradual rate hikes and slow preset reductions in our balance sheet". And, "it remains to be seen whether there will be two rate hikes this year, or three, or four or exactly when we start paring back reinvestments of maturing assets." Evans urged Fed to "assure the public that we recognize the new low-inflation environment and that we are not overly conservative central bankers who see our inflation target as a ceiling."

On the other hand, New York Fed President William Dudley was more positive. He didn't sound much concerned with low inflation. Instead, he noted that the US is "pretty close to full employment. And if labor market continues to tighten further "wages will gradually pick up". And with that "inflation will gradually get back to 2%". Regarding the economy, Dudley also expressed that he is "confident" that the expansion has "quite a long way to go".

Timetable and structure agreed for Brexit negotiation

UK and EU representatives met in Brussels yesterday for the first formal Brexit negotiation. Agreement was made that talks until October should focus on the three issues of financial settlement, citizens rights and Northern Ireland. Further talks will be held in the weeks of July 17, August 28, September 18 and October 9. UK's Brexit Minister David Davis said he was "encouraged" by the first talks that "laid solid foundations for future discussions and an ambitious but achievable timetable". On the other hand, EU's chief negotiation Michel Barnier said that little was achieved other than setting a timetable and a structure for negotiations.

BoE Forbes warned of costs of waiting too long

The hawkish BoE MPC member Kristin Forbes warned that for a period, policy makers have been "underestimating the inflationary pressures". And there's a "cost to waiting" before the central bank raise interest rates. She noted that "the increase in headline inflation isn't just a temporary effect of the exchange rate that's going to go away." And policy makers have to be "very cautious in how these exchange-rate effects will affect these permanent components of inflation." She also said that that "if you wait for wage growth to pick up, you've waited too long." Forbes will end her term by the end of this month. BoE has appointed Silvana Tenreyro, an economics professor at the London School of Economics, to replace Forbes.

RBA minutes added nothing new

RBA minutes showed that the central bank was confident that growth will pick up again the the weak Q1. Nonetheless, the board cautioned the developments in labor and housing markets and said they "warranted careful monitoring". In particular, the minutes said that "members observed that low growth in incomes, along with high levels of household debt, appeared to have been constraining growth in household consumption." Overall, the minutes added little to what Governor Philip Lowe said yesterday. Lowe painted an optimistic picture and said that growth over the next couple of years will be "a bit stronger than it has been recently".

On the data front...

Australia house price index rose 2.2% qoq in Q1. German PPI dropped -0.2% mom, rose 2.8% yoy in May. Eurozone will release current account today. US will release current account later while Canada will release wholesale sales.

USD/JPY Daily Outlook

Daily Pivots: (S1) 110.96; (P) 111.27; (R1) 111.84; More...

USD/JPY's rally continues today and breaches 111.70 resistance. Intraday bias remains on the upside for near term channel resistance (now at 113.02). Sustained break there will suggest that whole pull back from 118.65 has completed at 108.12 already. In such case, further rise should be seen to 114.36 resistance for confirmation. On the downside, below 110.63 minor support will turn intraday bias neutral. Break of 108.81 will extend the fall from 118.65 through 108.12 low before completion.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. It's uncertain whether it's completed yet. But in case of another fall, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77 to bring rebound. Overall, rise from 75.56 is still expected to resume later after the correction from 125.85 completes.

Economic Indicators Update

USD/JPY - 111.63

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 111.66

Kijun-Sen level                  : 111.35

Ichimoku cloud top             : 110.98

Ichimoku cloud bottom      : 110.45

Original strategy  :

Buy at 110.35, Target: 111.35, Stop: 110.00

Position :  -

Target :  -

Stop : -

New strategy  :

Buy at 111.25, Target: 112.25, Stop: 110.90

Position :  -

Target :  -

Stop : -

As the greenback has maintained a firm undertone after breaking above previous resistance at 111.42, adding credence to our bullish view that the rise from 108.82 low is still in progress for retracement of recent decline from 114.37, hence further gain to 111.90-95 (50% projection of 108.82-111.42-110.65) would be seen, however, overbought condition should prevent sharp move beyond resistance at 112.13 and 112.25 (61.8% Fibonacci retracement of 114.37-108.82 and 61.8% projection) should hold on first testing, price should falter below 112.50.

In view of this, we are looking to buy dollar on pullback but at a higher level as 111.20-25 should limit downside. Below 110.90-00 would defer and suggest a temporary top is formed instead, risk retreat towards previous support at 110.65 but reckon previous resistance at 110.35 would turn into support and contain downside.

Key Points:

• Gains should continue to be seen this week.
• The 0.9818 mark is likely to be our turning point.
• Technicals are largely driving prices.

The Swissy has been recovering nicely over the past week or so but it's been running into some resistance which could mean that it is now poised to reverse earlier than previously expected. What's more, now that the FOMC is out of the way, we can't rely on rate hike speculation to fuel the uptrend which leaves us looking to the technicals for answers.

Luckily for us, despite some readings being in disagreement, the technical bias remains rather bullish overall. For one thing, the pair continues to distance itself from the long-term ascending trend line – thereby regressing to the central tendency of the broader channel. Moreover, the ADX has moved out of strong-trend territory which suggests that the recent downtrend has run out of steam and that upside risks are increasing at a decent clip.

Furthermore, the parabolic SAR is actually suggesting that the medium-term downtrend is entirely done and dusted. Specifically, it is currently well below price action which would generally mean that we are moving into a bullish phase for the USDCHF, at least in the near to medium-term. Nevertheless, we can't ignore the fact that resistance is beginning to intensify which may prevent the pair from extending all the way back to the 0.9818 handle – as was originally forecasted.

As shown, the 0.9769 mark is proving difficult to break through which is due, in part, to the historical reversal zone around this price. Additionally, stochastics have trended towards overbought which will be giving the bulls some pause for thought as they attempt to bid the Swissy higher this week. It is also worth mentioning that the EMA bias remains rather bearish as well which could add to the headwindsworking against the pair.

Nevertheless, on the balance of things, our view is that the pair continues to extend gains this week until it reaches that 0.9818 mark. At this price, a more robust reversal point will likely encourage a slip to the downside, especially given that it coincides with the 38.2% Fibonacci level. Additionally, the 100 day EMA and the stochastics will be putting significant pressure on the Swissy at this price which will most likely necessitate a period of cooling-off for the pair.

Key Points:

• Price action is retreating away from the upper channel constraint.
• Dynamic support from the 20 DMA is looming.
• Watch for a breakdown in the coming days with downside targets around 0.8421.

The Euro-Pound has largely exhibited a sideways direction over the past few months as price action's movements have mainly been constrained by a channel. Subsequently, there have been plenty of trading opportunities as the pair has meandered, relatively reliably, between the two extremes. So it will likely not be missed that another setup has appeared on the daily timeframe that could see the EURGBP reversing in the coming days.

In particular, a cursory review of the technical factors highlights a particularly interesting pattern. Presently, price action has touched upon the upper channel constraint and is now slowly pulling back towards the 20 DMA. In addition, both the RSI and Stochastic Oscillator's are declining, within neutral territory, thereby suggesting that the downside pressure is building for the pair. Interestingly, there is also a bearish crossover in progress on the MACD which further supports the short side contention.

Fundamentally, the market is also still in shock from the recent ECB announcement that the inflationary forecasts have been slashed for the pair until at least 2018. This has largely put a dampener on speculation that we might have seen a rate rise from the central bank this year. In contrast, the Bank of England's inflation outlook is strengthening and we might just be getting to a key inflection point where they will need to act to contain it. Obviously, this would lead to a relatively rapid appreciation for the Pound over the medium term.

Ultimately, the pair's direction in the coming days is relatively clear as the majority of technical indicators favour a downside move. The opening salvo is likely to start with a breach of the 20 DMA with any concerted move lower bringing a sharp change in momentum. The most likely scenario is that the bearish pressure will result in a downside move back towards major support at 0.8421. Any additional declines are relatively unlikely given the presence of a triple bottom and additional support factors.

US Tech Stocks Rallied

Market movers today

It is a relatively quiet day on the data front with the except ion of Sweden, where a host of different labour market indicators and new debt project ions by the debt office are due

In the US, the financial markets are continuing to absorb the Fed's rate hike decision last week. We will listen extra carefully to the speech by Evans (voter, dovish) today, as we think he may be one of the four FOMC members who does not expect any further hikes this year. See FOMC review: Hawkish Yellen ignores inflation and weaker data, 15 June 2017.

Selected market news

US tech stocks rallied yesterday with the Nasdaq 100 Index jumping the most since November, thereby rebounding from two weeks of declines, though not enough to recoup all of the losses that started on 9 June. Treasuries fell after William Dudley said halting the tightening cycle now would imperil the US economy. The dollar rose to the highest versus the yen since 2 June, while gold slipped to a one-month low as haven demand ebbed. This morning, Asian equit ies are also higher.

Brent oil prices are more or less unchanged this morning and seem to have found a floor in recent days after a significant decline over the past month. We updated our views on the Commodities Market Guide yesterday.

In France, the financial markets are absorbing the strong parliamentary elect ion result for President Macron and his government , which gained absolute majority in the French Parliament on Sunday. Yesterday, stocks of French state-owned companies soared on speculation that Macron will seek a greater role for the private sector in these companies.

The negotiations between the UK and the EU's chief negotiat or kicked off yesterday. The UK seems to have lost its first bat t le with the European Union over the timetable for Brexit talks, as the UK government gave in to EU demands to discuss the terms of its divorce – including the exit fee – before any consideration can begin on the In France, the financial markets are future trade deal that Britain wants with Europe's common market . The UK governmenthad originally hoped for parallel talks on both the ‘divorce' terms and a free trade agreement , but that demand has now been scrapped.

For the 24 hours to 23:00 GMT, the AUD declined 0.38% against the USD and closed at 0.7597.

LME Copper prices rose 0.6% or $31.5/MT to $5687.0/MT. Aluminium prices rose 0.03% or $0.5/MT to $1861.5/MT.

In the Asian session, at GMT0300, the pair is trading at 0.7590, with the AUD trading 0.09% lower against the USD from yesterday's close.

Earlier today, minutes of the Reserve Bank of Australia's (RBA) June meeting revealed that committee members were concerned about household debt and wage growth, while policy makers expect a broad slowdown in the nation's first quarter growth, weighed by weaker consumption. Nevertheless, the central bank expressed confidence that growth in the resource-rich economy will accelerate over coming years.

On the data front, Australia's house price index advanced 2.2% on a quarterly basis in 1Q 2017, meeting market expectations and compared to a gain of 4.1% in the previous quarter.

The pair is expected to find support at 0.7574, and a fall through could take it to the next support level of 0.7557. The pair is expected to find its first resistance at 0.7618, and a rise through could take it to the next resistance level of 0.7645.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the EUR declined 0.43% against the USD and closed at 1.1150.

On the macro front, the Euro-zone's seasonally adjusted construction output rebounded 0.3% on a monthly basis in April, following a drop of 1.1% in the previous month.

The US Dollar advanced against its key peers, after a key Federal Reserve (Fed) policymaker indicated that a third interest rate hike this year remains on the table.

The New York Federal Reserve (Fed) President, William Dudley, offered an upbeat assessment of the US economy, stating that tightening in the labour market will push wages higher and will eventually help drive up inflation. However, the Chicago Fed President, Charles Evans, noted that the Fed should move slowly to raise rates and shrink its portfolio, as inflation is stubbornly soft.

In the Asian session, at GMT0300, the pair is trading at 1.1156, with the EUR trading slightly higher against the USD from yesterday's close.

The pair is expected to find support at 1.1127, and a fall through could take it to the next support level of 1.1098. The pair is expected to find its first resistance at 1.1199, and a rise through could take it to the next resistance level of 1.1242.

Moving ahead, investors will look forward to the Euro-zone's current account data for April, slated to release in a few hours. Additionally, market participants would eye comments from a few Fed officials as they are scheduled to speak later in the day.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.