ASIA FX: USD Finds Support, Limited FX Fallout For THB From Political Turmoil

With China closed today, it was left to the Hang Seng to give an indication as to sentiment and it was definitely a risk off day.  With uncertainty prevailing around the trade war, the US President had said over the weekend that China had violated a big part of the agreement made in Geneva whilst China hit back Beijing called on the US to correct 'discriminatory' measures and uphold the consensus reached in Geneva.  Adding further to the uncertainty is the news of further tariffs on steel and aluminium and plans to target China's tech sector.  

• With mainland bourses closed, the Hang Seng had centre state and fell  -2.20%to be the worst performer out of its regional peers.  
• The KOSPI had tried to rally early on but that faded away to be down by -0.35%.  
• In Singapore the FTSE Straits Times fell by -0.50% whilst the PSEi in the Philippines was one of the few gainers, up +0.35%
• After a negative week last week, the NIFTY 50 in India is opening weak again, down -0.65% despite better than expected GDP figures out for Q1.  

The BBDXY has had a range of 1213.45 - 1216.54 in the Asia-Pac session, it is currently trading around 1215. MNI: Italy Eyes Transition To New NATO Target-Treasury Sources: The Italian government is confident that changes in both European Commission and NATO frameworks will allow for a smoother transition towards a higher defence spending target expected to be announced after the transatlantic summit on June 24, Treasury sources told MNI. Rome believes that a defence spending target of 5% of GDP – a figure currently circulating in policy discussions – would be “almost impossible to meet” given the country’s tight public finances. MNI SOURCES: ECB Set To Lower 2026 Inflation Projection: The European Central Bank is likely to lower its inflation projection for 2026 to 1.7% or 1.8% in its June exercise, one or two tenths below the 1.9% seen in March, Eurosystem sources told MNI, adding that there could be a pause in rate cuts after a further 25-basis-point reduction next week.

• EUR/USD -  Asian range 1.1347 - 1.1382, Asia is currently trading 1.1365. EUR has drifted higher during the Asian session as US stock futures trade weaker. Dips should continue to find support, the demand back towards 1.1200 proved to be solid last week.
• GBP/USD - Asian range 1.3454 - 1.3506, Asia is currently dealing around 1.3490. The GBP could not hold above the pivotal 1.3500 area last week, the market is likely to give it another try. Look for an opportunity to buy again back towards the 13300/3400 area.
• USD/CNH - Asian range 7.2016 - 7.241, Asia is currently dealing around 7.2170. Sellers should be around from here all the way back to the 7.2500 area. 
• Cross asset : SPX -0.45%, Gold $3315, US 10-Year 4.41%, BBDXY 1215, Crude oil $62.47
• Data/Events : Spain, Italy, Germ, France, ECB HCOM Manu PMI’s

The Asia-Pac USD/JPY range has been 143.44 - 143.99, Asia is currently trading around 143.55. USD/JPY has been under pressure in our sessions as the market's focus returns to buying the JPY as a safe haven once more as US Stocks futures move lower. This was due to increased trade tension between the US and China and the rise in geopolitical risk as Ukraine launches an unprecedented attack deep inside Russia. 

• “Ukraine attacked Russian airbases with drones destroying 40 bomber planes, according to the BBC. It appears in response to larger Russian attacks on Ukraine recently including Kyiv. Talks are due to start Monday.”(BBG)
• There is lots of speculation as to what the response from Russia may be to what some are calling its “Pearl Harbor”. https://www.newsweek.com/retired-us-commanders-react-ukraines-pearl-harbor-attack-russia-2079551
• "*JAPAN'S AKAZAWA ARRANGING US VISIT FROM THURS.: KYODO" - BBG
• US Equity futures are off around 0.5% in Asia and this has seen the JPY outperform across the board.
• The market seems very confident of a move lower in USD/JPY but with positioning quite large now we have seen the risks of pullbacks increase. Resistance around the 146.00 area held perfectly and the JPY bulls would be quite relieved as well as vindicated by the price action. The next pivotal trigger points look to be below 140.00 on the downside and above 146.50 on the topside.
• Options : Close significant option expiries for NY cut, based on DTCC data: 144.00($670m). Upcoming Close Strikes : 140.00($1.88b June 5), 142.00($884m June 5).

• CFTC data shows Asset managers maintained their already extensive JPY longs, and leveraged funds reduced their longs that had just started to be built up.

  Fig 1 : JPY CFTC Data

  

  Source: MNI - Market News/Bloomberg