USD: BBDXY Consolidates Below 1200, Awaits NFP For The Greenlight Lower
The BBDXY range overnight was 1189.11 - 1193.32, Asia is currently trading around 1189. The BBDXY initially tried to move higher overnight but found good supply back towards 1193 and quickly moved back lower again. The USD has opened slightly lower in the Asian session, -0.04%. The larger picture remains one of USD weakness, the NFP tonight print could potentially give this another leg. In the current environment rallies should continue to be met with supply, first resistance is back towards the 1205/1215 area.
- (Bloomberg) -- “One of the reasons the Fed has been able to be patient before cutting rates was because the job market was holding up so well, so if that were to change then the Fed may be forced to move earlier than they would like,” wrote Chris Zaccarelli, chief investment officer for Northlight Asset Management”
- Guy LeBas on X: ”BMO Economics: Anecdata for June NFPs "skewed heavily to the downside" by 9:2”
- Robin Brooks on X: “Quick reminder that ADP is a terrible predictor of payrolls, but is still widely watched. A month ago, ADP predicted weak payrolls and was wrong. As a result, yields and the Dollar rose a lot. This time around ADP is even weaker, so we're setting up for the same kind of thing...”
- Bob Elliott on X: “Financial markets are fully back to post-election euphoric pricing of a growth boom ahead just as the hard data continues to weaken.”
- There is a broad consensus that the USD is set to embark on a decent move lower as the world reduces its exposure to the US and repatriates a lot of these flows. This consensus will also result in some decent short squeezes as a lot of the market is positioned the same way.
- Data/Events : NFP, S&P Global Services PMI, ISM Services Index, Factory Orders, Durable Good Orders
Fig 1: BBDXY Weekly Chart
Source: MNI - Market News/Bloomberg Finance L.P
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CHINA: CAIXIN PMI Unexpectedly Contracts
- China's May CAIXIN PMI contracted in May, surprising forecasters.
- May's result of +48.3 was materially down from +50.4 in March and a surprise to market survey's predicting a rise to +50.7
- May's result was the worst since Q3 2022.
- Output fell sharply to +47.5 vis +51.6 in April for the lowest reading since late 2022 and new orders fell from the month prior.
- The outcome reverses seven consecutive months of expansion and speaks to the uncertainty created from the US-China trade war.
BOJ: Ueda- Baseline Scenario Could Change Significantly
BoJ Governor Ueda is in parliament, with headlines crossing currently. The governor is reiterating the trade uncertainties are extremely high and will remain so, even once tariff rates are settled.
- A few key headlines are outlined below via Rtrs: "BOJ GOV UEDA: HAVE SAID IN OUTLOOK REPORT THAT OUR BASELINE SCENARIO COULD CHANGE SIGNIFICANTLY - [RTRS]" "BOJ GOV UEDA: NO PRESET PLAN FOR RATE HIKES, WILL RAISE INTEREST RATES ONLY IF ECONOMY, PRICES TURN UP AGAIN, OUTLOOKS LIKELY TO BE REALISED - [RTRS]"
- So the likely bias remains to raise rates further, but as Ueda notes the baseline scenario (particularly based off where tariff/external conditions end up) could change significantly.
- On the bond buying program: "BOJ UEDA: WILL REVIEW BOND TAPER PLANS AT NEXT POLICY MEETING TAKING INTO ACCOUNT OPINIONS OF BOND MARKET PARTICIPANTS - [RTRS]"
- Note that the next BoJ board meeting outcome due on June 17. Ueda reiterated that sharp moves in super long end yields could also influence the short end.
- Note as well Governor Ueda will speak later today at 4:50pm local time.
CHINA PRESS: Liquidity To Stay Loose In June
Interbank market liquidity will remain loose in June following the PBOC’s reserve requirement ratio cut and increased medium-term lending facility rollover in May, Economic Information Daily reported, citing analysts’ expectations. However, liquidity could fluctuate given increased fiscal spending at the end of the month, said Ming Ming, chief economist at CITIC Securities. Analysts should track the intensity of central bank’s liquidity support closely as recent deposit rate cuts may further exacerbate the migration towards wealth management products, Ming added.
