The euro (EUR) hit fresh monthly highs while the Australian dollar (AUD) rallied and then stumbled in a lively midweek trading session that saw a fair amount of volatility following a heavy deluge of data.
In Asia, AUDUSD initially spiked higher, taking out the .9300 barrier after Australian CPI figures showed that core inflation was in line at 0.5%. The news sent the Aussie higher on the assumption that modest price pressures would keep the Reserve Bank of Australia (RBA) from cutting the benchmark rate by another 25 basis points (bps) at the upcoming meeting in August.
The euphoria didn't last, however, because the release of the Chinese PMI manufacturing data quickly took the steam out of the rally. The HSBC Chinese flash PMI came in at 47.7 versus 48.6 expected. This was the worst reading in 11 months, as operating conditions have deteriorated at the quickest pace since last August. The majority of activity sub-indices declined as well, including total orders, employment, production, and work backlogs, although some analysts found a ray of sunshine in the fact that new export orders rebounded to 47.7 from 44.9 the period prior.
Nevertheless, this was a very weak report that suggested Chinese industrial output is clearly slowing, which will have a negative impact on demand for Australian commodities. Little wonder then that AUDUSD slid in the aftermath of the news, dropping through the .9200 level before finally finding some support.
Long-Awaited News from the Eurozone
The news out of Europe was decidedly better, with Eurozone flash PMI manufacturing data popping above the 50 boom/bust line for the first time in two years. The improvement in manufacturing was driven by Germany and the periphery economies, indicating that the region's long and drawn out recession may finally be coming to an end.
The EURUSD popped on the news, running through the barriers at 1.3250, but the pair has since stalled near 1.3240 as it awaits North American flow.
US Housing Data on Tap Today
In the US today, the market will see the release of the flash PMI data and the new home sales report. US housing data has been disappointing, but the market anticipates a slight uptick in new home sales to 482K from 476K the month prior.
If the data meets or beats expectations, USDJPY could extend its recovery and push towards 100.50 as the day progresses.
By Boris Schlossberg of BK Asset Management