Asia Day Ahead: USD/SGD attempting to defend its higher low

Asia Open

The late-night bounce in Wall Street to end last week seems to catch the recent bears by surprise, putting a halt to the recent bout of profit-taking in major US indices. This sets the Asian session up for a positive session, with Nikkei +1.22%, ASX +0.87% and KOSPI +1.51% at the time of writing, as market participants found some comfort that the US Personal Consumption Expenditures (PCE) data did not trigger much inflation surprise.

The US headline and core PCE price index both matched expectations on a year-on-year basis, while the month-on-month core read of 0.2% from previous 0.3% pointed to the smallest growth this year, which offered some conviction that inflation is on track for further softening. US Treasury yields reacted to the downside, with the US dollar now facing a key test of defending an upward trendline support at the 104.42 level. Any breakdown could further fuel risk sentiments across the region.

Aside, Japan Ministry of Finance has officially confirmed broad expectations of intervention efforts back in April-May, with the US$62.25 billion amount comparable to that of September/October 2022. But as per previous instances, until there is a more hawkish shift in the Bank of Japan (BoJ)’s policy stance, market participants are willing to continue riding on the carry-trade appeal, with the USD/JPY potentially eyeing for a drift higher to the 160.00 level over coming weeks.

Look-ahead: China’s Caixin manufacturing PMI

The spotlight on the economic calendar will be on China’s Caixin manufacturing purchasing managers' index (PMI). The series of economic data out of China lately has been rather mixed with ongoing weakness in domestic demand, while the downside surprise in the official May PMI numbers has led to some unwinding in optimism around China’s recovery.

Current expectations are for China’s Caixin manufacturing PMI to tick slightly higher to 51.5 from the 51.4 prior. If it holds true, it may help to calm some nerves over the recent bumpy recovery and offer some room for Chinese equities to stabilise after their recent sell-off.

What to watch: USD/SGD attempting to defend its higher low

The USD/SGD has managed to defend an upward trendline support at the 1.341 level lately, which stands in confluence with the lower edge of its daily Ichimoku Cloud, and keeping the formation of higher lows intact. However, more conviction for buyers may have to come from a move back above the 1.354 level, which marked its post-US consumer price index (CPI) dip.

For now, its daily relative strength index (RSI) is back to retest its key mid-line, which may require a break above 50 to signal buyers taking greater control. Near-term support will remain at the upward trendline at the 1.347 level, while breaking past the 1.354 level may pave the way for a retest of the 1.361 level next.