USD/JPY Tests Retracement Level, Before Weaker China PMI Stabilizes USD Sentiment

The BBDXY USD index is modestly lower in Thursday trade to date. We were last near 1253.30, against earlier lows of 1251.8.

• Early focus remained on USD/JPY downside. After edging up to 150.32 the pair quickly reversed lower, eventually getting to 148.51 after the Tokyo fix.
• Further liquidation of yen shorts appears to be a continued driver of sentiment in the space, while early options volumes was skewed towards USD shorts with lower strike levels in the pair.
• Sentiment started to stabilize after the China Caixin PMI came in well below expectations (which also aided higher USD/CNH levels). USD/JPY was last near 149.50, still around 0.30% stronger in yen terms. The earlier low was just under a Fib retracement level (148.54).
• AUD/USD has mostly underperformed, which has been a consistent theme since yesterday's CPI miss. The pair last near 0.6530, off 0.15%. The China PMI miss didn't helped, although metal prices are a touch higher. China/HK equities are down modestly at the lunch break.
• NZD/USD has traded relatively steady, last 0.5955. The AUD/NZD cross last near 1.0965/70, which is where we post yesterday's CPI miss.
• In the cross asset space, US equity futures are firmer, led by the Nasdaq (with META up late US hours post better revenue). US yields are firmer after Wednesday's sharp losses, but gains are not beyond 2.5bps at this stage.
• Looking ahead, we have the BoE decision, along with final EU PMI reads. Later US jobless claims, July manufacturing ISM/PMI, Challenger job cuts and Q2 productivity/ULC print.