Despite the slew of data during yesterday’s North American session, overnight trading was rather quiet. Yesterday’s FOMC announcement turned out to be a bit of a non-event. Bernanke and company didn’t give any new monetary policy guidance, instead choosing to play the “Wait & See” game. Markets interpreted this as marginally dovish, but seem to be waiting for Friday’s Non-Farm Payrolls result before really committing. Currencies were unable to break out of previously established ranges overnight and largely traded at the same levels as they did pre-FOMC. The one notable exception to this was the Australian Dollar which continued to grind lower as sentiment for the unit remains weak.
A host of manufacturing PMIs were released overnight, starting with the Chinese number which came in at 50.3, better than the 49.8 consensus forecast according to Bloomberg. It’s worth mentioning that the HSBC version of the PMI number showed 47.7, a rather significant divergence from the official number, which some analysts believe could have to do with sampling methods. Then in the European session various EU countries released Manufacturing PMI numbers. The outcomes were generally constructive, with many nations posting above 50, indicating expansion. Highlights include the UK, which posted 54.6, its highest result since March 2011, and Italy which posted its first expansion since July 2011.
The Bank of England (BoE) had its second kick at the can with former Bank of Canada head behind the wheel. As expected there was no change in rates or easing. Markets had been conscious of the possibility that the BoE may engage in some limited forward guidance as it did on July 4th. This didn’t materialize, although Carney is expected to present forward guidance next week during the Inflation Report press conference. The Sterling caught a bid as the lack of actively dovish chatter permitted investors to run with the exceptionally strong Manufacturing PMI result. The Cable traded up more than half a big figure to the mid 1.5200 area, matching yesterday’s highs, but has since consolidated. The EURGBP however reversed course more convincingly, backing off from yesterday’s multi-month high as the Euro underperforms.
The European session saw the European Central Bank (ECB) make its regularly scheduled rate announcement also. As expected no changes to policy were made. ECB head Mario Draghi is conducting his press conference at the time of writing, but as of yet has not mentioned anything new. Today’s PMI data is certainly encouraging, however unemployment remains a concern in the Euro area and the ECB will be cautious not to do anything that may threaten that sector. The market seems to be idling in neutral waiting for Draghi to offer something to trade on. Following a period of elevated volatility at the time of the announcement, which saw the common currency sell off, the Euro has stabilized. The EURUSD is now trading at pre-ECB levels, as is the EURJPY, though as mentioned above the EURGBP is softer as investors favor the Sterling.
The weekly Thursday US Unemployment Claims special was published this morning, posting 326k, besting forecasts of 345k and extending the trend of strength in the American labor sector. This morning’s number in concert with yesterday’s strong ADP Payroll report points to a strong Non-Farms number tomorrow, and the USD is seeing a bit of demand on that sentiment.
Looking at the USDCAD, channel support in the mid 1.02 handle contained the pair through all of yesterday’s data releases and the overnight trading. The inability to break channel support leaves the broader ascending trend intact for the time being. This morning’s constructive Unemployment Claims has the pair testing weekly highs in the 1.03 handle, which if breached put 1.0440, resistance from early July, on the table. A lack of any further Canadian data on the docket this week means the pair will follow the lead of broader market sentiment. Keep your eyes on what is happening with the USD, the Loonie will fall in place.
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