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China Data Weighs On CNH In Early Trade, ECB Decision Due

EMERGING MARKETS
  • The ECB will likely hike rates by 25bp and confirm the previous decision to end APP reinvestments in July. Absent a sharp drop in core inflation, we would expect the ECB to hike again in July. Even if the ECB were to raise rates further in September, this would likely be the last turn of the screw.
    • With attention on Yen weakness overnight, the focus over the ECB will likely be on EURJPY, which currently trades at its highest level since 2008. The next objective for the rally in EURJPY will be 153.62, the 1.618 Fibonacci projection of the Mar 20 - 21 - Apr 6 price swing.
  • China's economy continued to recover over the last five months with production and consumption growing steadily, and industry upgrading, data released by the National Bureau of Statistics on Thursday showed. Industrial production increased 3.5% y/y in May, decelerating from April's 5.6% y/y increase, and weaker than the market consensus of 3.8%.
    • This latest batch of softer than expected Chinese economic data and the PBoC delivering the widely expected 10bp cut to MLF rate were the main drivers of the yuan weakness early on, before an abrupt pullback from session highs, USD/CNH last shows at ~7.1657, off the earlier highs of CNH7.1922.
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