Japan leads Asia

Renewed US dollar strength has been front and centre of the key moves we are seeing in Asian equities.

Source: Bloomberg

The greenback rallied helped by strong data as housing starts posted the best figure since November 2007. Housing starts rose by over 20% in April while building permits rose around 10%. This helped temporarily take the edge off concerns about the economy in Q2. The greenback surged across the board while treasury yields also climbed. A combination of these two factors kept US equities on the back foot as they struggled to post another record. Additionally, there is a bit of nervousness ahead of the FOMC meeting minutes. Strength in the greenback has been pivotal to the gains in Japan today. USD/JPY reclaimed the ¥120.00 handle and has now come within touching distance of ¥121.00. We had seen a long period of consolidation for the pair over the past few months and this week’s strength seems like it could trigger further near term gains. Japan’s GDP data was also timely as it came in well ahead of estimates at +0.6%. Clearly the economy is turning a corner and I suspect this can be attributed to the recent positive swing in trade balance numbers. The Nikkei managed to consolidate above 20,000 and could now be gearing up to retest late April highs.

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AUD fails to trigger ASX 200

A weaker AUD/USD wasn’t enough to really drive gains for the ASX 200 today. In fact it was quite the opposite as extremely choppy trade continued with a rapid selloff accompanied by buying off the lows. This has seen us trade in quite a wide range as the market oscillated around 5,600. Additionally renewed iron ore weakness with the commodity dropping ore back below $60/t ($58.63/t) added to the pressure. On the calendar today we had Westpac consumer sentiment which showed some optimism and this is evidence that the rate cut cycle is having an effect on consumers. This reading could even pick up further in months to come as the impact of the budget gives a tailwind.

Euro shorts back on the cards

A selloff in the euro and sterling were perhaps highlights after the two currencies had gone through weeks of outperformance. EUR/USD fell to a low of $1.112 with a miss in the ZEW economic sentiment readings and some ECB commentary weighing on the single currency. Traders have been waiting for fresh shorting opportunities on the euro and this latest move could see traders consider momentum plays. Meanwhile, cable dropped below $1.5500 after the UK CPI reading printed -0.1%. Weakness in the euro saw equities rally with the DAX leading the way. News the ECB would front load QE purchases ahead of low liquidity in the summer - and possibly immediately after the summer - also underpinned equities. Unfortunately Greece remained a thorn with no positive developments and reduced expectations of a swift solution. We are currently calling European markets weaker with equities giving up some of yesterday’s gains. There is nothing significant on the European calendar today but in the UK we have BoE minutes. The most important release will be the FOMC minutes in the US which could cause some greenback volatility.


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