Earlier on today in signs that economic activity may be starting to slow down in China the recent steps to tighten monetary policy appear to be having an effect with June manufacturing PMI dropping to its lowest levels since February 2009 at 50.9 and prompting fears that it could start to contract.

Now that the Greek austerity vote has overcome both the voting hurdles placed in its path this week, the way would appear to be now clear for the next release of IMF/EU funds, which should enable Greece to meet its next payment obligations through the summer, thus buying European politicians more time to come up with some way to delay what many in the market now seems inevitable.

Continued hawkish talk from ECB President Trichet ahead of next weeks ECB rate meeting has raised market expectations of a rate hike to be a nailed on certainty.

That being the case you would expect it to be more than priced in by now.

With the small matter of Greece behind us for now investors can return their focus to more routine matters like economic data, with Euro zone and German PMI data for June due to be released later this morning. Expectations for both are expected to come in unchanged from May’s figures of 52 and 54.9 respectively.

However given yesterday’s surprising miss on German retail sales there remains a concern that the European economy could well be starting to hit a soft patch.

That appears to certainly be the case in the UK and the Bank of England will certainly be hoping that manufacturing PMI continues to hold up, with expectations of a rise to 52.3 from May’s 52.1.

A disappointing number here will push the likelihood of any talk of tightening even further into the long grass than is already the case, and could further bolster the case for Adam Posen and his continued calls for further QE. This would be particularly notable given the slightly more dovish tone being adopted by some other members of the MPC.

In the US ahead of the 4th July holiday the latest ISM figures for June has been widely anticipated due to concerns about the recovery in the US economy. The expectation is that it will slip back to 51.8 from 53.5 in May, while the prices paid component is also expected to slip back as well from 76.5 to 71.8.

University of Michigan confidence data is also due out with expectations of 72, up slightly from the previous 71.8.


EURUSD– as suspected the trend line resistance from the 1.4940 highs did indeed come into play yesterday, and the 1.4540 level has so far rebuffed attempts to break through it. This is the last remaining barrier to a return to the 1.4700 area and the highs this year.

The 55 day MA at 1.4405 now becomes a key support area now and for the downside view to remain intact we need to see the single currency break back below here to target the 1.4320/30 area and retest the key trend line support at 1.4130/40 from the May lows at 1.3970.


GBPUSD – yesterday’s moves respected both the 1.6120/30 resistance zone and the support area around the 1.5980 area referred to in yesterday’s note.

A break of 1.6120/30 could well see further gains towards 1.6200; while below the 1.5980 area retargets the lows of earlier this week around 1.5910 as well as the 1.5880 area which is the 61.8% retracement of the 1.5340/1.6745 up move.


EURGBP – yesterday’s move above the 0.9000 area saw the single currency take out the May highs around 0.9045 and extend towards 0.9070, its highest levels since May 2010.

The daily long legged doji candle posted on Tuesday proved to be somewhat of a false signal and it looks like we could well see a test of the May 2010 highs around 0.9150.

It now looks as if it will take some move to undermine the upward momentum of the past few days but a move below 0.9000 could well be the first evidence of a correction lower. The four hourly charts are extremely overbought; however it would need a sustained break back below the 0.8940 area to shift the focus back towards 0.8850.


USDJPY – another push higher in 10 year US bond yields has seen a break of the 200 day MA at 3.12% which assuming the turnaround can be maintained should keep the dollar yen underpinned.

So far there hasn’t been enough momentum to take dollar beyond the 55 day MA at 81.30 which is needed to signal the next leg higher towards the May highs at 82.00.

For now the 80.00 level remains fairly solid support while a slide below 79.80 could well see a re-test of the May lows at 79.50.

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