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EUR: Watching final manufacturing PMI data for the Eurozone.   Single currency will be focused on potential for downward revisions, especially in the core countries of France and Germany.

USD:  The US manufacturing ISM (PMI equivalent) has held above the 50.0 level for the past in all but one month of the past four years.   The market is looking for a steady headline figure at 50.7 today, but the dollar will be vulnerable if we do get close to or below the 50 level.

Idea of the Day

A new month and it’s going to be a long one, waiting for the US Fed decision on the 19th.   At the extreme, some are thinking the Fed could announce a scaling back of bond purchase as early as this meeting, given the recent comments and indications from the minutes of the last meeting.

The jobs data will be crucial, more so than ever, as the Fed have stated purchases would continue until a substantial improvement in the labour market is seen.   To us, this means seeing payrolls growth of 200k plus on a sustained basis (6 month average).   We’re not quite there yet, but if it looks like we’re getting that much closer at the end of the week (when labour data is released), then expect the dollar to gain a decent bid once again.

Latest FX News

JPY:   So far, then yen is heading towards its fourth consecutive session of gains vs. the US dollar and is currently not that far from a break below 100 on USDJPY, a level not seen since 9th May.   Today is a light week for data in Japan, so yen will be more vulunerable to changes in overall risk sentiment.

AUD: Retail sales for April showed the anticipated recovery, rising 0.2% after the -0.4% fall seen in January.   Little impact though, with the Aussie holding up well above the 0.96 level vs. the USD despite the more risk-averse tone emerging.   This further suggests that the Aussie is vulnerable to corrective activity after the strong sell-off from last month.

EUR:  A quiet overnight session for the single currency, although for now there is still a fight with the 1.30 level.   The euro continues to take a breather from worrying about the sovereign crisis, but this is not to say that budget problems have gone away.   The euro was the strongest non-dollar performer of the major currencies last month.

CNY: Softer PMI data seen overnight, with the HSBC manufacturing series falling to 49.2, from 50.4, the first contraction recorded for this year.   Data has helped instigate a more risk-averse tone to Asian markets. The official PMI data, released over the weekend was relatively steady at 54.3 (from 54.5).

Further reading:  ECB: Decent chance of a negative deposit rate, just not in June; Fed to taper in 2013