EM ASIA CREDIT: San Miguel Corp: Q2 results announced

The BBDXY range overnight was 1200.14 - 1208.31, Asia is currently trading around 1206. The BBDXY surged higher with US yields in response to the CPI print. On the way down the BBDXY has been heavily sold every time it has challenged the 30 EMA on the Daily(See Chart Below), will the sellers again use this area to reload shorts or can the USD finally initiate some sort of a correction. The larger picture though still remains one of USD weakness and a sustained break above 1220 would be needed to begin challenging the shorts conviction. 

• Otavio Costa on X: “The US dollar has strengthened over the past two weeks, largely as a result of positioning shifts from an extremely bearish stance. This tactical move is likely closer to the end than the beginning, in my view. I still believe we’re in the middle of a broader, structural downtrend in the dollar — one that’s far from over.”
• David Rosenberg on X: “There was a time when a +0.2% print on the Powell ‘super core’ inflation measure would have ignited a bond rally.  Obviously not today, even though this metric has slowed to a mere +1.1% annual rate from January to June.  All the market sees is the tariff effect starting to percolate through the goods sector – and more is to come. The question is the extent to which the moderation on the services front can continue to be relied on to provide an antidote - but the Fed clearly isn’t going to be taking any chances.”
• 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 : Empire Manufacturing, CPI

Fig 1: BBDXY Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P

This morning has seen US futures open under pressure, ESU5 -0.15%, NQU5 -0.20%. The AUD has come under pressure against the USD but continues to perform ok in the crosses.

• EUR/AUD - Overnight range 1.7754 - 1.7839, Asia is currently trading around 1.7785. The pair has found some decent demand around the 17750 area the last couple of days. There should be some resistance back towards 1.7900 first up, first support is 1.7650 then more importantly the 1.7450 area. 
• GBP/AUD - Overnight range 2.0443 - 2.0571, Asia is trading around 2.0520. The pullback is now testing the lower end of the 2.0450 - 2.1050 range, it has found some decent support in the last couple of days but unlike EUR/AUD has not yet managed to bounce. Bounces back towards 2.0800 should now see supply. A close back below 2.0450 would signal the potential for a deeper pullback.
• AUD/JPY - Overnight range 96.73 - 97.43, Asia is trading around 97.20. The pair has had a good move above 96.00 and looks to be building momentum to extend higher. The market has been caught wrong-footed in both legs of this pair and price action suggests a potential move back to 99.00/100.00. With the risk backdrop souring it is unusual to still this pair so well bid, this continues to point to a market that is paring back positioning. A Deeper correction in risk though would start to provide headwinds to further gains.
• AUD/NZD -  Overnight range 1.0945 - 1.0964, the cross is dealing in Asia around 1.0955. The cross has broken out of its recent range and is now trying to push through the more pivotal 1.0950 area. Dips back to 1.0850/1.0900 should now be supported as the pair tries to build momentum to move higher.

Fig 1: GBP/AUD spot Hourly Chart

Source: MNI - Market News/Bloomberg Finance L.P

• The PBOC issued CNY520.1  bn of 7-day reverse repo at 1.4% during this morning's operations.
• Today's maturities CNY75.5 bn
• Net liquidity injection CNY444.6bn.
• The PBOC monitors and maintains liquidity in the interbank system through the issuance of reverse repo.
• The CFETS Pledged Repo Deposit Institutions 7 Day Weighted is at 1.42%, from prior close of 1.56%.
• The China overnight interbank repo rate is at 1.45%, from the prior close of 1.30%.
• The China 7-day interbank repo rate is at 1.50%, from the prior close of 1.57%.