EZ PMI Retail better led by DEM
UK MP and IP plunges
EZ Factory Orders
USD calendar quiet save for ADP
CAD Ivey PMI on tap
A quiet, consolidating session in foreign exchange markets tonight as the greenback continued to receive a boost from better than expected ISM Services report yesterday. After being grossly oversold, the buck was due for a bounce as both the euro and the pound ran into major resistance at the 1.3300 and 1.9800 levels respectively. Soon however, attention will turn to Fridays NFP report which as always will be critical to determining the next course of action on FX. For the time being the market appears to have absorbed most of the negative US fundamental data and has stabilized around current levels. For the dollar to fall further, traders will need to see additional evidence of weakness in the US economy. On the other hand if the US job picture proves resilient, the EUR/USD may well retrace to the 1.3100 level.
Meanwhile the news from UK was not positive as both Manufacturing and Industrial Production plunged with the former falling -0.4% against expectations of a 0.2% rise. The result was understandable given both the rise in cable which weighed on the export sector, and the overall fall off in UK consumer demand. Although the countrys services sector continues to grow at a healthy pace, the appreciation in the currency may have finally caught up with UK industry and could lead to a material slowdown in manufacturing sector next year. Although services clearly rule the UK economy, if manufacturing falters badly, the BoE may be forced to move to a neutral rather than a tightening stance, much to the surprise of many sterling bulls counting on further rate hikes from the central bank. One data point does not a trend make, but as weve argued repeatedly over the past week UK economic news has not been supportive of the units parabolic run to 14 year highs. None of this may matter if US data continues to disappoint, but the pound could begin to under perform against both the euro and the yen if the bad news continues.
