Euro Soft As EU Summit Lacked Inspiration, PMIs Watched

Euro remains broadly soft as the informal EU summit yielded nothing to restore investor confidence. Leaders reiterated their stance that they want Greece to stay in euro but insisted on its commitment to agreed bailout terms. Meanwhile, it's reported that the Eurogroup Working Group is already working on contingency plans in case of Greece exit. Eurobond was discussed and as expected, faced opposition from German as Merkel said it won't be a contribution to promoting growth. Dutch prime minister Rutte also rejected eurobonds as that would increase the country's borrowing cost.

Regarding stimulating growth, some common areas gathered consensus. That include issuance of so called "project bonds" as backed by EU budget for financing infrastructure projects. The paid-in capital of European Investment Bank would be doubled to above EUR 20b. Meanwhile, structural funds would be redirected areas that could reap immediate benefits. More details would be discussed at the June form summit. But economists are skeptical on the effectiveness of the three proposals.

Asian markets attempted to recover earlier today following the late rebound in DOW but lost steam after China manufacturing data. The HSBC China manufacturing PMI dropped to 48.7 in May, suggesting that contraction continues. And, that's the seven consecutive month the index stayed in contraction region below 50. HSBC noted that manufacturing activities softened again in May, reflecting "deteriorating export" situation. And that calls for more "aggressive policy easing". HSBC is still optimistic that "as long as the easing measures filter through, China will secure a soft landing in the coming quarter".

Looking ahead, a number of important economic data will be released from Eurozone today, including manufacturing and services PMIs which will provide some insight on how worse the recession could be. Germany will also release IFO business climate while UK will release Q1 GDP revision. From US, durable goods and jobless claims will be featured.

Dollar index finally broke 81.78 resistance yesterday and confirmed resumption of medium term rally from 2011 low of 72.69. Near term outlook stays bullish as long as 80.89 support holds and we'd expect further rise to 61.8% retracement of 88.70 to 72.69 at 82.58 next. A focus will be on whether current rise would accelerate in near term, which could set up the momentum for reaching 100% projection of 74.72 t 81.78 from 78.09 at 85.15 later in Q3.