China PMI Next, Yen Shorts Pile In

Fresh talk of Chinese rate cuts surfaced on the weekend but the immediate concern is on today's official PMI. The week began with miniscule moves in the FX market while last week the Swiss franc led and kiwi lagged. CFTC positioning showed a jump in yen shorts.  

The focus is on China after the wild swings in the Shanghai Composite last week. A government researcher was in the state-sanctioned Securities Journal and said there is room for a cut in traditional rates and the RRR.

Other weekend news included comments from the SNB's Jordan, who once again said the franc was significantly overvalued and threatened intervention “if required”. The market has reacted in early trading.

It's a holiday in New Zealand but other markets will be busy with a full slate on the calendar including Japanese Q1 capex; Australian TD Securities inflation; Australian building approvals and Q1 inventories. But the main item on the agenda is the Chinese official PMIs, especially the manufacturing number at 0100 GMT. The consensus estimate is 50.3, an uptick from 50.1 in April. If it rises as expected, it could diminish pressure for a rate hike but also watch the non-manufacturing PMI, which was previously at 53.4.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

EUR -172K vs -168K prior

JPY -62K vs -22K prior

GBP -26K vs -23K prior

AUD +6K vs +7K prior 

CAD +7K vs +4K prior

CHF +8K vs +9prior

The market wasn't shy about piling into yen shorts after the break to the highest since 2002. We maintain a close eye on the 124.13 level, which was the 2007 high. USD/JPY close virtually on that mark on Friday. We'd like to see a definitive close above to confirm the momentum higher.