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Comments out of China yesterday continued to drive the risk currencies higher, particularly the AUD which remains quite elevated. AUD/USD hit a high of 0.93 in US trade and continues to knock on the resistance in that zone.
It is a big day of data today with Australia’s CPI and China’s HSBC flash manufacturing PMI due out. It certainly seems like inflation could be the trigger for a rate cut, should it show further signs of stalling. Quarterly CPI is expected to show a 0.5% rise, which implies a year-on-year run rate of 2.5%.We feel should the data come in line or better than estimates, this will be a trigger for further short term gains in AUD/USD. There is significant resistance in the 0.93-0.932 zone and any misses would warrant selling the pair after recent gains. China’s HSBC flash manufacturing PMI is expected at 48.6, and given China has been a major source of volatility for the region this week, any variations from this number could see some big moves in risk.
Later today we also have several PMIs from Europe and the US. EUR/USD also continued to trend higher and managed to print a high of 1.324 in US trade. The push higher in EUR/USD coincided with a better than expected consumer confidence reading for the eurozone. French, German and European manufacturing and services PMIs are also released in European trade today and given the improvement we have been seeing in the eurozone recently, we wouldn’t be surprised to see the data come in slightly ahead of consensus but still in contraction. Near term resistance for the pair is in the 1.324 region, a break of which could see it head back towards 1.34 in the near term which is near the highs from June.
Japan’s trade balance numbers were released this morning and slightly missed consensus (-0.6 trillion versus -0.58 trillion expected). However, it was a big improvement from the previous reading of -0.78 trillion. USD/JPY rallied through 100 in Europe yesterday only to drop off in US trade as the USD lost ground. The pair is currently trading at around 99.50 and we still feel dips below 99 for USD/JPY could be used as an opportunity to buy.