Market Drivers May 4, 2016

EZ PMIs generally in line
Dollar finds a bid
Nikkei closed Dax -0.27%
Oil $43/bbl
Gold $1283/oz.

Europe and Asia:
EUR EZ PMI 53 vs. 53
GBP UK PMI 52 vs. 54
EUR EZ Retail Sales -0.5% vs. -0.1%

North America:
USD ADP 8:15
USD Trade Balance 8:30
USD ISM Non-Manufacturing 10:00

The dollar found a bit of a bid in Asian and early European trade today as profit taking and softer economic data helped the greenback rebound.

Price action was generally subdued with only a smattering of data on the docket and Japanese markets still closed for Golden week holidays. But the buck saw early flows in Asia where a very thin liquidity driven rally sent USD/JPY to 107.50 before retracing most of the gain.

In Europe the EZ final PMI readings were generally in line with the composite coming in at 53 as expected. Growth in the region remains at a steady pace comfortably above the 50 boom/bust line and so far the rise in the exchange rate does not appear to be having any negative effects on economic activity.

In UK the PMI Construction report missed its mark printing at 52 versus 54 eyed. This was the lowest reading since June of 2013 and the second time this week that PMI readings were softer than forecast. Uncertainty over the Brexit referendum weighed on the construction sector just as it did on manufacturing and its is likely that tomorrow’s figures from the all important PMI Services report could disappoint as well.

Cable dipped below the 1.4500 figure in the aftermath of the report and continued to slide lower as traders are now focusing on economic risk rather than the political headlines. The pair remains grossly overbought after a massive 1000 point rally over the past several weeks, spurred by relief that the Remain vote is likely to win and is vulnerable to a much more serious correction especially if the Remain vote begins to lose its edge in polling at the same time as economic data continues to disappoint. The pair would then be subject to a double whammy of risk on both political and economic fronts and could quickly revisit the 1.4000 levels in a flurry of selling.

In North America today, the focus will turn to the ADP and ISM-Non Manufacturing reports – both of which are key precursors to the NFP report this Friday. The market anticipates essentially unchanged readings from the month prior and if the data comes within expectations it could provide further boost to the greenback as the day proceeds. Although at this point almost no one anticipates any monetary action by the Fed in June, any supportive US data could provide further fuel to this week’s dollar rebound with EUR/USD drifting to 1.1400 and USD/JPY once again retaking the 107.00 barrier as the day proceeds.

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