Market Drivers October 23, 2015

EZ PMI’s beat provide some relief for the euro
Commdollars show relative strength
Nikkei 2.11% Europe .1.23%
Oil $45/bbl
Gold $1172/oz

Europe and Asia:
JPY Flash PMI 52.5
EUR Man PMI 52 vs. 51.8
EUR Svc. PMI 54.2 vs. 53.6

North America:
CAD Core CPI 8:30

After yesterday’s massive slide, the euro saw a bounce in early European trade today boosted by slightly better EZ Flash PMI data that showed economic activity continues to expand in the region albeit at a slow pace.

Yesterday’s bombshell ECB presser during which President Draghi hinted that the central bank stood ready to expand QE and perhaps even lower the deposit rate to -50 basis points, knocked the euro for a loop and the pair lost more than 200 points by the end of the day as traders fled the unit.

Although Mr. Draghi focused on low inflation readings as probable cause for the ECB actions, it is clear that he concerned about growth in the region and wanted to arrest the rise of the EUR/USD which may be hampering exports. The aggressive rhetoric yesterday suggested that the ECB was likely preparing the market for the shift in policy during the December meeting.

Today’s flash PMI readings were a small test of the current conditions on the ground and the data proved to be slightly better than expected providing some small relief to euro bulls. The EZ Manufacturing Composite PMI came in at 52 vs. 51.8 led by a rebound in France where the data improved to 52.3 from 51.9 the month prior. The better increase was in services where composite reading saw a jump to 54.2 from 53.6 forecast. This was the largest rise in six months showing that the recovery is spreading across the whole region rather than just the core.

Although today’s data was encouraging the forward looking indicators pointed to possible slowdown in November. According to Markit,”Service sector expectations of activity in the year ahead hit a ten-month low, while the manufacturing orders-to-inventory ratio dipped to its weakest for nine months.”

It’s far too early to tell whether Mr. Draghi and company will go through with their plans for more monetary stimulus, but for now the impact of the rhetoric has certainly had its impact and euro will remain in sell the rally mode for the foreseeable future. Today’s North American calendar is barren which could provide a vacuum for a short covering rally in the pair. For now the 1.1100 figure remains near term support, but if the data from the EZ begins to deteriorate again the 1.1000 level will quickly come into view.

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