Asia Day Ahead: US dollar broke below trendline support, AUD/USD back at wedge resistance
A weaker-than-expected manufacturing PMI read from the US ISM survey seems to ignite some growth concerns for the world’s largest economy.
Asia Open
The Asian session kicked off in the red, with Nikkei -0.89%, ASX -0.21% and KOSPI -0.55%, as a weaker-than-expected manufacturing Purchasing Managers' Index (PMI) read from the US Institute for Supply Management (ISM) survey seems to ignite some growth concerns for the world’s largest economy. The May manufacturing PMI registered a contraction of 48.7 versus the 49.6 consensus, with its second straight month of decline suggesting that the earlier March bounce may be just a one-off blip rather than a recovery trend.
Market expectations leaned more firmly into a September rate cut following the data release, prompting US Treasury yields to head sharply lower, with the 10-year yields falling 11 basis point (bp). A notable downside move is seen in the US dollar (-0.5%), which broke below a key trendline support and marks a continuation of its downward bias. Sellers seem to take greater control now, which may leave the 103.05 level on watch for further retest.
Chinese equities managed to stabilise lately following its recent bout of profit-taking, with the Hang Seng Index (HSI) attempting to stay above a 38.2% Fibonacci retracement level from its April-May rally at the 18,300 level. Slightly stronger-than-expected Caixin manufacturing PMI read (51.7 versus 51.5 consensus) may help to offer some relief amid prevailing areas of weakness in economic conditions.
What to watch: AUD/USD back to retest upper wedge resistance
The breakdown in the US dollar may be well-cheered by the AUD/USD, which found its way back to retest an upper wedge trendline resistance around the 0.671 level. Having met some resistance earlier in May 2024, another quick retest of resistance within a short span of two weeks may raise the odds of a successful upward break.
Overcoming the 0.671 level may potentially leave eyes on its December 2023 high at the 0.687 level. On the other hand, failure to get past the wedge resistance could prompt a move lower to the 0.658 level, where a near-term minor double-top neckline may stand.
Key economic data to watch ahead includes Australia’s 1Q gross domestic product (GDP) release tomorrow, with expectations for growth conditions to grow 0.2% quarter-on-quarter, unchanged from 4Q 2023.
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