Markets Stay Guarded Despite China Profit Gains – Action Forex

Markets were subdued in the Asian session today, showing little enthusiasm in response to China’s better-than-expected industrial profit figures. Profits rose 3.0% yoy in April, following a 2.6% gain in March, pushing year-to-date growth to 1.4%. The data was notably resilient given ongoing trade tensions. Still, the NBS struck a cautious tone, warning of persistent headwinds such as weak domestic demand, price pressures, and heightened global uncertainty stemming from ongoing trade war.

Risk sentiment remains fragile despite US President Trump’s decision to postpone the threatened 50% tariff on EU goods until July 9. This move offers a temporary reprieve, but the lack of a clear path to resolution continues to weigh on investor confidence. US futures are holding up for now, but the news should have already been priced in. The broader concern is that even with paused escalations, the threat of further trade disruptions remain a structural drag on growth and trade.

This cautious backdrop is reflected in persistent Dollar weakness and the steady resilience in Gold. As for today so far, commodity currencies are under mild pressure along with the greenback. Yen and Swiss Franc are the strongest performers, followed by Euro, while Sterling trades mixed.

AUD/CAD is a pair to monitor this week, with Australian monthly CPI due Wednesday and Canadian GDP on Friday. Technically, rebound from 0.8440 stalled after hitting 0.9041. Price actions from there is currently seen as a corrective pattern only. Downside should be contained by 0.8799 support (38.2% retracement of 0.8440 to 0.9041 at 0.8811). Break of 0.9041 will resume the rally through 0.9132 resistance.

In Asia, at the time of writing, Nikkei is down -0.23%. Hong Kong HSI is down -0.21%. China Shanghai SSE is down -0.33%. Singapore Strait Times is up 0.13%. Japan 10-year JGB yield is down -0.019 at 1.478.

Looking ahead, Swiss trade balance and German Gfk consumer sentiment will be released in European session. Later in the day, US will publish durable goods orders, house price index and consumer confidence.

BoJ’s Ueda highlights persistent food inflation and trade uncertainty

In his remarks at the BoJ-IMES Conference, BoJ Governor Kazuo Ueda highlighted a fresh wave of price pressures, particularly from food, has emerged in Japan recently. Rice prices nearly doubling year-on-year and broader non-fresh food categories climbing 7%.

While BoJ expects the latest food-driven inflation spike to be transitory, Ueda acknowledged that underlying inflation now hovers closer to the 2% mark than in previous years, warranting heightened vigilance.

BoJ retains its baseline scenario that underlying inflation will gradually return to the 2% target over time. However, given the evolving backdrop of supply-driven shocks and heightened global uncertainty, Ueda reiterated that any adjustment in the degree of monetary easing will hinge on incoming data.

“Considering the extremely high uncertainties, it is important for us to judge whether the outlook will be realized, without any preconceptions,” Ueda emphasized.

Japan’s external assets hit record, but top creditor status lost to Germany

Japan’s gross external assets soared to a record JPY 533.05T in 2024, marking a 12.9% increase from the previous year. This seventh consecutive annual rise was driven by a combination of Yen depreciation and continued outbound investment activity, especially in mergers and acquisitions.

The Japanese government, businesses, and individuals collectively benefited from currency effects, as Dollar and Euro appreciated by 11.7% and 5% respectively against Yen, inflating the yen-denominated value of overseas holdings.

Nevertheless, for the first time in 34 years, Germany overtook Japan with external assets totaling JPY 569.65T. China followed closely behind Japan with JPY 516.28T.

While Yen’s depreciation offered valuation support, Japan’s position was undercut by Germany’s structurally stronger current account surplus.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.1360; (P) 1.1389; (R1) 1.1417; More…

For now, further rise is expected in EUR/USD with 1.1255 support intact. Correction from 1.1572 should have completed at 1.1064. Rebound from there should target 1.1572 first. Decisive break there will resume larger up trend to 61.8% projection of 1.0176 to 1.1572 from 1.1064 at 1.1927. On the downside, however, break of 1.1255 will turn bias back to the downside to extend the corrective pattern with another falling leg.

In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will now remain the favored case as long as 55 W EMA (now at 1.0858) holds.