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Risk-on dominates Asia amid upbeat China PMIs, a raft of PMIs eyed

FXStreet (Mumbai) - Broad based US dollar strength persists in Asia as the broader market sentiment favored the riskier assets after the Chinese manufacturing gauges showed a slight improvement in September. However, volumes were relatively thinner as China stock markets remain closed in observance of National Day.

Key headlines in Asia

China Sept Manufacturing PMI sees slight improvement

Caixin PMI stands at six-and-a-half year low in September

Ex-BoJ deputy governor Iwata: Further easing likely

Dominating themes in Asia - centered on JPY, AUD, NZD

Risk-on rally in the equities was witnessed in Asia as the markets cheered the renewed global optimism while the latest set of Chinese factory data further added to the positive sentiment. Broad based US dollar strength was the underlying theme in the Asian session as the USD bulls ride higher on the upbeat US ADP employment report released in the US last session. While Yellen refrained from commenting on the monetary policy and inflation outlook in her speech overnight.

The Japanese yen was the biggest loser in Asia amid persisting improved risk-sentiment while dismal Japanese manufacturing index also weighed. The Tankan quarterly business survey showed that the large manufacturers’ index fell from 15 to 12 in the September quarter, opposed to expectations of 13. The USD/JPY pair ran through the roof and now tests highs near 120.25 levels, up 0.33% on the day. The yen further lost pace versus the greenback after ex-BOJ deputy Governor Iwata, noting that further scope for easing is on the cards.

The Antipodeans were the major beneficiaries of the rising risk-on trades with the Aussie also boosted on the back of the domestic manufacturing data. The AIG manufacturing index continued to expand in September, coming in at 52.1 versus 51.7 in August. Moreover, a better reading of China manufacturing PMI reports also supported the upmoves in the OZ currencies.
Meanwhile, the NZD/USD pair now trades 0.30% higher at 0.6415 levels while the Aussie rallies beyond the hourly 200-MA to 0.7057, up 0.53% so far.

On the equities space, Asian markets extend the previous rally, with Japan’s Nikkei emerging the biggest gainer, up 2.37% to 17,803. Australia’s S&P ASX index rallies 1.88% to 5,116. While the Chinese markets are shut as explained above.

Heading into Europe - centered on EUR, GBP

Nothing much of great significance is expected to be reported in the European session ahead, except the series of final manufacturing PMIs from across the Euro area economies.

The euro zone preliminary manufacturing PMI in September came in at 52.0 and the same result is expected in the final reading.

Germany's flash manufacturing PMI for September showed 52.5 points, expected to book the same figure in the final print.

The UK manufacturing PMI is seen heading slightly lower to 51.3 from 51.5 recorded in August.

Looking ahead, the North American session also sees a slew of macro releases from the US including the ISM manufacturing PMI report, construction spending data and the usual weekly jobless claims. While the crucial Friday’s US NFP figures remain on tap.

EUR/USD Technicals

Valeria Bednarik, Chief Analyst at FXStreet explained, “Trading near the base of the range, the 1 hour chart shows that the technical indicators are now consolidating near oversold levels, whilst the price extended well below its moving averages, with short term sellers surging in the 1.1180/90 price zone.”

“In the 4 hours chart, the price has extended below the 20 SMA that anyway remains flat, whilst the Momentum indicator remains directionless around its 100 SMA and the RSI holds steady around 40, maintaining the risk towards the downside, albeit far from signaling additional declines at the time being.”

China: Mixed Caixin PMI data releases – Rabobank

Michael Every, Research Analyst at Rabobank, notes that the Caixin PMI surveys out today showed manufacturing at 47.2, and services at only 50.5, with a composite PMI of 48.0 which is by contrast mixed to the official PMIs as they were also released today.
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