Image © thanasak, Adobe Stock
Dollar on Front Foot, ISM Manufacturing Ahead
The Dollar appears to be the out-performer on global FX markets with the currency paring some of the sharp losses it suffered at month-end.
“The sudden and sharp rally in EUR last Friday came as a surprise. The rapid swing higher appears to be running ahead of itself but there is scope for a test of last week’s peak at 1.1720. For today, the prospect for a sustained move above this level is not high (next resistance is at 1.1750). Support is at 1.1630 but only a break back below 1.1600 would indicate that the current upward pressure has eased,” says Quek Ser Leang at UOB in Singapore.
In the US, ISM manufacturing for June is being released today with markets anticipating a reading of 58.2 for June, down from 58.7 in the month prior.
One of the reasons behind the Dollar’s ongoing rally since mid-April has been the impressive economic performance being delivered by the US economy; therefore for the Dollar it is important that this tempo is maintained.
We would expect the currency to be more sensitive to disappointment in the data going forward as much of the US outperformance story will likely be embedded in the price of the currency.
Pound: Mixed Start, Manufacturing PMI
The Pound starts the new week on a mixed footing with a broad-based stability being seen against most competitors but a 0.25% loss against the Dollar being recorded.
“GBP staged a swift and solid rally that carried it to a high of 1.3214. While the rally is quickly approaching overbought, there is room for extension to 1.3245 before a pull-back can be expected,” says UOB’s Ser Leang.
Today brings with it the first of the Purchasing Manager Index (PMI) series with the release of manufacturing PMI. Markets are looking for a reading of 54.1, anything less could well hurt Sterling while a beat could aid the currency.
Euro: Final PMI Readings
The Euro remains underpinned after German Chancellor Angela Merkel’s ruling party this weekend backed the EU migration plan she helped negotiate with the EU leaders last week. The move removes some political risk from the Euro’s equation, which judging by the market’s relief to the EU summit outcome was indeed weighing on the currency.
Today, we will get final manufacturing PMI readings for the Eurozone, including first readings for Spain and Italy.
Because the Eurozone number is a second estimate, its ability to impact the market will be reduced unless there is a wide deviation on the initial estimate which sits at 55.0.
Look for Italian manufacturing PMI to red at 52.6 and the French equivalent to stand at 53.1. These numbers typically do not impact the currency.
Australian Dollar: Waiting for the RBA
The Australian Dollar staged a decent recovery on the final day of the month thanks to the atmosphere of generalised Dollar weakness, however the currency is largely flat at the start of the new month.
Data out today was largely disappointing, ANZ Australian Job Advertisements fell 1.7% in June, reversing the 1.4% gain recorded last month. This was the fourth monthly decline in six months of data released for 2018, though these falls do follow the very strong rise in January.
On an annual basis, growth slowed from 11.5% in May to 6.9% in June. This is the weakest annual growth since the second half of 2016.
Markets are likely to sit on AUD ahead of Tuesday’s Reserve Bank of Australia meeting where markets will get an update on the Bank’s thinking on interest rates.
No interest rate rise is expected but the RBA’s views on developments and the jobs markets will give a strong hint at the confidence at the RBA and in turn drive market pricing for the future of interest rates which are widely expected to go up again at some point in 2019.
Any new notes of caution inserted into the RBA’s guidance will surely push that pricing out and contribute towards any potential AUD weakness.
“The Australian Dollar has been hit hard over the past several weeks, most recently sinking below the 2017 low. The risk correlated commodity currency is staring at a less stable outlook on the back of US protectionism, favourable US Dollar yield differentials, declining metals prices and a reduction in investor appetite for equities. There has been some demand into the new week, with Aussie following the Euro higher after word spread of the migrant deal,” says a client briefing from LMAX Exchange at the head of the new week.
Advertisement
Get up to 5% more foreign exchange by using a specialist provider to get closer to the real market rate and avoid the gaping spreads charged by your bank when providing currency. Learn more here.
