Risk currencies remain under pressure in Asia

The main theme in the FX space was an unravelling of the risk trade, with risk currencies losing ground across the board. 

China
Source: Bloomberg

EUR/USD is looking increasingly vulnerable and remains stuck below a downtrend resistance line, which has been in place since July 14. The single currency was kept under pressure by a benign CPI reading and continuing geopolitical tension. Additionally on the USD side of the equation, a strong employment cost index reading and another strong unemployment claims reading kept USD optimism alive heading into the non-farm payrolls print.

A strong jobs reading later today could just be the trigger for another round of EUR/USD selling. The downtrend comes in at around 1.3400 and that is where we could see fresh shorts come into the frame. Economists are expecting 230,000 jobs (range 310,000 to 160,000). Keep an eye on the US unemployment number which is expected to remain steady at 6.1% and average hourly earnings though, as earnings tend to be a good feed for inflation. On the European economic calendar, manufacturing PMIs will be in focus and a disappointment there could add to the selling.

AUD reacts to China PMI

After having lost its grip on the 0.9300 handle on the back of USD strength, AUD/USD has managed to recover some ground in Asia today. A better-than-expected China manufacturing PMI reading aided a minor bounce for the AUD, but this hasn’t lasted long at all.

Risk sentiment has remained subdued and this is clearly weighing on the local currency. Additionally, PPI data also came in below expectations. I continue to prefer selling a recovery into previous support at 0.932 in the near term. The next notable support is all the way down in the 0.9200 region, where the 200-day moving average comes in.

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