Yen Mildly Lower After Positive Tankan, Manufacturing Data In Focus

Yen opened the week mildly lower after release of the quarterly Tankan survey. The large manufacturer index turned positive to +4 in Q2 while large non-manufacturing index improved to +12. That compared to -8 and +6 in Q1, which were notable improvements. Companies also expect to raise capital spending by 5.5% in the current fiscal year. That's much stronger than market expectation of 2.9% rise. The survey showed positive sentiments among Japanese companies on the weaker yen and steady recovery and are willing to invest in expanding operations. Technically, USD/JPY's rally last week confirmed resumption of rebound from 93.78 and outlook stays positive. But EUR/JPY and GBP/JPY are still stuck in range for the moment. Upside breakouts in EUR/JPY and GBP/JPY are needed to confirm weakness in the Japanese currency.

Released from China, the official PMI manufacturing dropped to 50.1 in June, down from May's 50.8. The data suggested virtually no expectation in the manufacturing sector. The HSBC China PMI manufacturing dropped 48.2, lowest in nine months. HSBC China chief economist noted that falling orders and rising inventories added pressure to manufacturers in June. And, he noted that recent liquidity crunch would slow expansion of off-balance sheet landing and exacerbate funding conditions for SMEs. Growth is expected to be slow in the coming months.

Looking ahead, manufacturing data is a major focus today. In European session, UK PMI manufacturing will be released and is expected to be unchanged at 51.3 in June. UK will also release mortgage approvals and M4. Swiss will release SVME PMI and is expected to rise slightly to 52.5 in June. Eurozone will release PMI manufacturing final, CPI and unemployment rate. From US, ISM manufacturing index is expected to rise back to 50.6 in June. Meanwhile, a number of key events will be featured later this week including ISM services and NFP from US, ECB and BoE rate decision as well as RBA rate decision.

Latest CFTC data showed that net speculator positions were generally unchanged on June 25 comparing to the prior week. Though, improvement was seen in Canadian dollar positions. Euro position stayed net long at 17.4k, dropped slightly from 20.0k. Yen net shorts was relatively unchanged at -61.5k Sterling net shorts were relatively unchanged at -19.4k. Canadian dollar net shorts dropped to -10.6k from -26.1k. Aussie net shorts were relatively unchanged at -61.7k.