Market Drivers Nov 23, 2015

EZ Flash PMI beat with GE leading the way
Comm block under pressure
Nikkei closed Eurostoxx -0.70%
Oil $40/bbl
Gold $1070/oz

Europe and Asia:
EZ Flash PMI 54.6 vs. 54.2

North America:
USD Existing Homes 10:00

The week in FX started with yet another dollar rally, but EUR bulls were able to defend the 1.0600 barrier through Asia and early European morning trade boosted by better than expected data from the flash PMI readings.

The dollar longs were out in force at the start of Asian trade with commdollar complex taking the brunt of the selling as Aussie dropped to a low of 7159 while USD/CAD rose through the key 1.3400 level. Nickel prices hit limit down in Shanghai while steel futures hit an all time low. The secular decline in commodity prices shows no signs of easing and most market analysts still expect further rate cuts from RBA and RBNZ.

With Japan markets closed the lack of liquidity only exacerbated the flows sending dollar sharply higher against all the majors. The EUR/USD was sold especially hard in Asian session trade, but the pair came to a screeching halt right at the 1.0600 barrier. Although there were attempts to run the level, option defenses held off the bear raid for now and eco data during the the start of European dealing helped to repel the dollar bulls.

EZ Flash PMI’s – the best indicator of economic conditions on the ground – surprised to the upside printing at 52.8 versus 52.3 on the Manufacturing side and at 54.6 versus 54.2 on the services side. Manufacturing rose at its fastest pace since 2011 while employment, and new order backlogs all posted their strongly monthly gains in four and a half years.

Lower exchange rates and pick up in demand in the EZ is having a positive impact in European economic activity and some market participants have started to speculate that ECB President Mario Draghi will not resort to an extra helping of QE in December given the improvement in data. All of this prognostication may be premature especially given the geopolitical tensions in the region and any further terrorist activity could quickly stifle the nascent recovery. Still today’s data was the first truly positive piece of news from the Eurozone in very long time and it suggests that the QE program is having its intended stimulative effect on the region.

Whether all of this will be enough to hold off the dollar bulls today remains to be seen. The early run at the 1.0600 barrier was repelled but generally such moves always have a second wave and dollars long may press the pair again in North American trade especially once the option expiration passes after 10 AM NY time. Still the push below the 1,0600 level is likely to bring in some bargain hunters as the EUR/USD continues see very strong support at the 1.0500 level which represent multi-year lows for the pair. Despite the desire of dollar bulls the case for EUR/USD parity is premature.

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