FX Daily Strategy: Asia, Jun 12th

Figure 1: GDP Growth Hardly Strong and With Increasing Downside Risks Ahead?

Perhaps it is a supreme irony that just as business surveys suggest clear weakness, if not fresh contraction, the actual real economy has surprised on the upside, even in the first month after the Middle East conflict.  Indeed, and in perspective, official GDP data suggest that since Labour took office in July 2024, the economy has grown a cumulative 2%-plus, ie over 1% per year.  And providing yet more apparent signs of such economic resilience and, once again exceeding expectations, GDP grew by 0.3% m/m in March 2026, following growth of 0.4% in February.  We think this is more an aberration than a better trend and partly a result of poor seasonal adjustments, meaning that we see April GDP falling back 0.3% (Figure 1), this chiming with both weak(er) business survey activity (Figure 1) and employment signals and where what growth may actually have occurred likely to be short-lived boost in inventory building.

Geopolitics will continue to dominate USD flows. The latest development seems to favor more USD upside in a short run. Unless we see a strucutral development, the prolong conflict will only push the greenback even higher.

On the chart, the pair is little changed as prices extend choppy trade, currently capped by resistance within the 100.00 - 100.21 range. Daily readings are mixed, highlighting room for further cautious trade, before rising weekly charts prompt fresh gains. A close above the 100.21 high of 8 June will improve sentiment. But a further close above the 100.64 current year high of 31 March is needed to turn sentiment positive and extend mid-April gains towards the 101.15 Fibonacci retracement. Meanwhile, support remains down to congestion around 99.50 and should underpin any immediate setbacks.

Pressure remains on the upside as prices extend gains from the 155.00 May low towards retest of the 160.72 April current year high. Would expect reaction here but a later break cannot be ruled out. Clearance, if seen, will extend the broader gains from 2024 year low and see room to retest 161.95, July 2024 multi-year high. Meanwhile, support is raised to the 160.00 figure. Would take break here to ease the upside pressure and see room for deeper pullback to support at the 159.00/158.60 congestion and 18 May low.