Market Drivers for July 02 2014

Cable Construction PMI 62.6 vs. 59.5

AU Trade Balance misses badly

Nikkei 0.29% Europe 0.10%

Oil $105/bbl

Gold $1327/oz.

Europe and Asia:

AUD Trade Balance -1.91B vs. -0.1B

GBP UK PMI Construction 62.6 vs. 59.7

EUR PPI -0.1% vs. 0.1%%

North America:


The majors went their own way on the second trading day of the week with cable once again leading the pack while euro and Aussie lagged hobbled by weak economic data. In Australia the Trade deficit widened markedly shocking the the market and knocking AUD/USD back below the 9500 figure.

The Australian terms of trade deteriorated significantly with the Trade deficit increasing nearly ten times the projected amount to -1.91B from -200M eyed. The news suggests that the rising value of the Aussie and dampened demand for raw goods from China is starting to weigh heavy on Australian trade.

To add insult to injury the ABS also revised the cumulative data from January by more than 1B lower indicating that the trade problems may be chronic. The news pushed Aussie to a low of 9450 and the pair may remain under pressure for the time being. The RBA is clearly concerned with the high exchange value of the AUD/USD especially as it rises above 95 cents and today’s weak economic results confirm their fears that growth is being seriously impacted by the appreciation of the Aussie dollar.

If Aussie continues to attract carry trade flows the RBA may have no choice but to lower rates as the year progresses in order to arrest the rally in the pair.

Meanwhile in UK, cable continued to climb, hitting a high of 1.7184 in the aftermath of the better than expected UK PMI Construction data which rose to 62.6 from 59.7. This is the second positive PMI print this week and if tomorrow’s important PMI Services also surprises to the upside, then GBP/USD could take out the 1.7200 figure before the week’s end.

In North America today the focus turns to the ADP report which is the main precursor of the NFP data due tomorrow. Although ADP is often wrong about the NFP results the markets will nevertheless look at direction of the report. If job growth increased above the key 200K mark it would be yet another positive data point confirming that US economic performance has improved substantially since the disappointing contraction in Q1. With bonds yields appearing to have stabilized at the 2.5% level, any uptick in ADP could push them towards 2.60% barrier and help USD/JPY recover the 102.00 handle over the next several days.

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