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USD:   The new home sales data of marginal interest for the dollar, the immediate impact usually very limited. In the bigger picture though, the improving housing market has been important in the improving US economy.

EUR: The manufacturing PMI data for the Eurozone as a whole have been below 50 for 20 months now, with no near-term prospect of this situation improving. The services data has been below 50 for 14 moths. Both are seen little changed, but market will be focused on the extent core markets (Germany and France) are slowing.   Weaker data increases  the perception that the ECB will cut rates before the summer and makes a sustained push below 1.30 on EURUSD more likely.

Idea of the Day

We’re seeing a shift in the dynamics of FX markets once again. The turn-around that we were talking about towards the end of last year has been remarkable. The highly correlated world of previous years has gone, with the dollar becoming a lot more correlated with the US data prospects and dynamics, rather than with ‘risk assets’.

This is changing once again, with the dollar’s correlation with US data surprises falling from what was the highest level since late 2009 (rolling 3-month correlation).   What’s noticeable is that this change is emanating more from overseas, as can be seen in the recent decline of the Australian dollar, in part based on concerns about growth prospects in China, which have again knocked the Aussie overnight.

Europe’s growth prospects also look pretty bleak, with more on this today with the PMI data.   In summary, we’re seeing a shift, with the non-dollar growth prospects now having a stronger bearing on the dollar. This could also pressure the euro if expectations of a further interest rate cut strengthen.

Latest FX News

JPY: The 100 level on USDJPY moved further away from the firing line as the weaker than expected China PMI data gave the yen a lift as stocks were on the defensive. One month rolling correlation between Nikkei and USDJPY has been strengthening over the past month, up to 0.56 from 0.05 a month ago.

CNY/CNH:   The latest (HSBC) manufacturing PMI data for China was weaker than expected at 50.5 (from 51.6), with new export orders said to have contracted after a temporary rebound in March.   Data weighed on China stocks and other Asian equity markets. USDCNY is still holding steady just below the 6.18 level.

GBP: Sterling in a holding pattern that has seen GBPUSD consolidate above the 1.52 level. The focus remains on the GDP data released on Thursday, where the market expects a marginal increase.

AUD: The Aussie (and kiwi) the weakest performers during the Asia session on the back of weaker data from China and associated impact on commodity prices.   Focus initially on the 1.02 level, with 1.0115 the low for the year. Note though that correlation between Aussie and commodities has fallen recently.

Further reading:  The dash for growth