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Asia Roundup: Oil retreats from multi-month highs on stronger dollar and supply concerns, Focus on US GDP numbers and Fed Chair Yellen’s speech - Friday, May 27th, 2016

Market Roundup

  • G7 leaders declaration – Commits to growth, shuns FX devaluations and disorderly moves - Reuters.
     
  • Government sources – Japan PM Abe set to delay sales tax hike – Reuters.
     
  • Japan PM Abe considering two-year delay in sales tax hike – Yomiuri.
     
  • Reuters poll – Japan Inc. braces for return to deflation, downbeat on government growth strategy.
     
  • Japan April core CPI -0.3% y/y, Tokyo May core -0.5%, -0.4% eyed for both, April core-core CPI (ex-food/energy) +0.7% y/y.
     
  • Foreign CB US debt holdings week-ended May 25 -$1.746 bln to $3.218 trln, Treasuries -$524 mln to $2.903 trln, agencies -$983 mln to $265.704 bln.
     
  • NY Fed – Swaps with foreign CBs $1.006 bln May 25 week, BoJ $1 mln, rest ECB.
     
  • Lipper – US-based stock funds record 4th straight week of withdrawals.
     
  • UK May GfK consumer confidence index -1, as eyed, April -3.
     

Economic Data Ahead (ET/GMT)
 

  • (0830 ET/1230 GMT)  US Q1 GDP - 2nd estimate,  +0.9% q/q eyed; prelim +0.5%.
     
  • (0830 ET/1230 GMT) US Q1 PCE prices/core, +0.3%/+2.1% q/q eyed; prelim +0.3%/+2.1%.
     
  • (0830 ET/1230 GMT) US Q1 GDP deflator, +0.7% q/q eyed; prelim +0.7%.
     
  • (1000 ET/1400 GMT) US May U.Mich sentiment index – final, 95.4 eyed; prelim 95.8.
     

Key Events Ahead (ET/GMT)
 

  • (0600 ET/1000 GMT) UK DMO GBP0.5/1.0/2.5 bln 1/3/6-month treasury bill auctions.
     
  • (1315 ET/1715 GMT) FOMC Chair Yellen speaks at Harvard University.
     

FX Beat
 

EURUSD:
 

EUR complex again very quiet on the day, flows limited, little interest and action. EUR/USD has jumped till 1.12168 yesterday and slightly retreated from that level. It is currently trading around 1.11757. The pair’s immediate resistance is around 1.1200 (100 day EMA) and any break above will take the pair till 1.12168 (yesterday high) /1.1245/1.1280. On the lower side support is around 1.1160 and break below will drag the pair down till 1.11287 (25 th May low)/1.1100 (200 day MA). The market awaits Fed chairman speech at Harvard University at 5:15 PM GMT for further direction. Monday to see sizeable expiries from 1.0970 to 1.1285. Options bracket – E4.6 bln+ 1.1000-1.1150, E4.0 bln+ 1.1200-1.1300.
 

GBP/USD:
 

Cable in tight range in Asia, has made a high of 1.46881 and declined till 1.46202 at the time of writing . It is currently trading around 1.46380. The pair should break below 1.46000 for further weakness. Any break below 1.46000 will drag the pair till 1.4550/1.4480. On the higher side minor resistance is around 1.4740 and any break above targets 1.4770/1.4780 (200 day MA).Cable should close above 200 day MA for further up move and any indicative break above will take the pair till 1.48500/1.4900 in short term.
 

AUD/USD: 
 

Aussie lacks clear direction, AUD/USD trades sideways between 0.7215-35, hovers around 61.8% Fib at 0.7212. Weekly charts are biased lower, we see scope for test of 0.7042 (78.6% Fib), bearish invalidation only above 0.73 levels. RBA Governor Stevens’ dovish comments earlier this week and rising expectations that the Fed could hike at any of the next few meetings keep upside limited. Pair finds major resistance at 0.7242, upside potential only on decisive break above. While 0.72 (5-DMA and psychological level) is immediate support.
 

USD/CHF:
 

USD/CHF has taken support near 10 day EMA and slightly jumped from that level. It is currently trading at 0.99056. On the lower side major support is around 0.9830 (200 day MA) and any break below confirms minor weakness, a decline till 0.9780/0.9750 (21 day MA). The pair’s immediate resistance is at 0.99375 (25 th May 2016) and break above targets 0.9980/1.000.
 

USD/JPY:
 

JPY supported in Asia amid ongoing chatter that Japan’s PM Abe will soon announce delay in sales tax hike. USD/JPY is facing strong resistance at 110.50 (55 day EMA) and any break above will take the pair till 111.12/111.88 (25 th Apr high). On the lower side major support is around 109 and any break below will drag the pair till 108. The pair should close below 108 for further weakness. Japanese exporter offers on 110 till Tuesday month-end. Japanese importer and investor interest on dips. USD4.3 bln+ 110.00-111.65 option expiries today to help cap upside.
 

NZD/USD:
 

A better risk environment in the Asian session provided impetus to the NZD/USD pair which hit session highs at 0.6754. Upside appears to lack follow through as the USD bulls jumped back into the bids, following a brief correction fuelled by weak durable goods data. Pair was rejected at stiff trendline resistance on the upside and is back to currently trade at session lows. Downside finds strong support by 100-DMA at 0.6721, pair holding above for now. Break below could see test of 0.6655 (trendline support) and further downside to see 0.6565. To the upside, immediate resistance is located at 0.6753 (10-DMA) ahead of 0.6755 (trendline) ahead of 0.6770 (Mar 23rd highs).
 

Equities Recap
 

The MSCI All-Country World equity index edged higher by 0.1 percent. The pan-European FTSEurofirst 300 index of leading European shares slipped 0.1 percent.
 

Australia's S&P/ASX 200 index unofficially closes up 0.46 pct at 5,413.00 points. Tokyo's Nikkei average unofficially closes up 0.37 pct at 16,834.84. Seoul shares unofficially close up 0.64 pct.
 

China's CSI300 index closes down 0.1 pct at 3,062.50 points, down 0.5 pct for the week. Shanghai composite index down 0.2 pct for the week.
 

Commodities Recap
 

Oil futures slipped in Asian trade on Friday after hitting resistance at the $50 a barrel mark on oversupply concerns, stronger dollar. Brent fell 34 cents, or 0.7 percent, to $49.25 by 0652 GMT on Friday. U.S. crude dropped 31 cents, or 0.6 percent, to $49.17 a barrel after touching $50.21 on Thursday.
 

Dalian iron ore +1.6%. Silver was down 0.11% at 16.325, while gold largely unchanged at 1220 levels after making day's low of 1211.51 and high of 1223.36.
 

Treasuries Recap
 

The Japanese government bonds gained after data showed weaker than expected April consumer inflation figure, which intensified pressure on Bank of Japan (BoJ) for more stimulus. Also, weak crude oil prices supported the bond prices. The yield on the benchmark 10-year bonds, which moves inversely to its price fell 1 basis points to -0.112 percent and the yield on short-term 2-year bonds also dipped 1 basis points to -0.236 percent by 0530 GMT.


The Australian bonds climbed on Friday as investors were cautious ahead of Federal Reserve Chair Janet Yellen speech in an attempt to estimate the Fed's likely next step to raise interest rate. Also, weak crude oil prices supported the cause. The yield on the benchmark 10-year Treasury note which moves inversely to its price fell 2 basis points to 2.266 percent by 0500 GMT. 
 

New Zealand government bonds gained, pushing 3 basis points lower at the short end and 2.5 at the long end.
 

The Indian government bonds traded modestly firmer on Friday as rupee continued to appreciate against the USD. Moreover, investors were also cautious ahead of bonds auction later in the session. The yield on the benchmark 10-year bonds, which moves inversely to its price fell 0.003 percent to 7.469 by 0700 GMT.

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