Market Drivers for September 3rd, 2013
RBA takes out “further scope” lifting Aussie to 9050
UK PMI Construction best in 6 years
Nikkei -.47% Europe .12%
Oil $106/bbl
Gold $1389/oz.

Europe and Asia:
AUD Retail Sales 0.1% vs. 0.3%
AUD Current Account -9.4B vs. -8.3B
AUD RBA 2.5%
JPY Average Cash Earnings 0.4% vs. 0.8%
GBP Construction PMI 59.1 vs. 58.4

North America:
USD ISM Manufacturing 10:00
USD IBD Economic Optimism 10:00

It’s been a relatively lively night in FX markets as currencies were pushed around by geopolitical concerns and better than expected economic data. In mid morning London dealing the markets suddenly retrenched on reports that Russian defense ministry detected two ballistic objects in the Eastern Mediterranean.

USD/JPY quickly tumbled 40 points as risk aversion gripped the markets but the pair stabilized ahead of the 99.00 level as traders tried to assess the situation. The Russian reports are unconfirmed and in any case are unlikely to be the result of any US action, as President Obama awaits Congressional approval before making any military moves against Syria.

The reaction does speak volumes about the nervousness of the markets as traders await the escalation of conflict with trepidation. Although, President Obama has stressed the limited aspect of any engagement in Syria, the markets continue to be concerned about any possible fallout from the US military action could precipitate and will likely remain jittery for the near term.

On the economic front the news was considerably more sanguine with UK Construction PMI rising at the sharpest rate in 6 years as it handily beat the 58.4 estimate printing at 59.1. This was the second positive UK data point this week after yesterday’s strong Manufacturing reading. If tomorrow’s UK Services PMI also beats forecasts, completing the trifecta, it would confirm that UK recovery is gaining impressive momentum and would negate much of the BOE dovish stance.

Cable rose to a high of 1.5606 in the aftermath of the release, but has since dropped back into the 5570’s as focus turned to geopolitical news. Still the pair remains well supported at the 1.5500 level and has performed very well against the euro with some traders now targeting 8400 in EUR/GBP as UK growth begins to exceed Eurozone’s.

In Australia today the RBA kept rates on hold at 2.5% and reiterated much of its past rhetoric noting that the Aussie remains high, that inflation will continue to moderate and that the economy is beginning to adjust to the lower levels of mining investment. However the fact that the RBA omitted “scope for further easing” passage from its statement provided bulls with some ammunition and helped to rally Aussie towards the 9050 level as the imminent threat of further rate cuts dissipated.

In US today the first trading day of the week brings the ISM Manufacturing data which is expected to recede slightly to 54.2 versus 55.4. Any upside surprise could provide modest boost to USD/JPY with the pair targeting the key 100.00 level. However, the news from Washington could overshadow any eco data as markets continue to keep an eye on the maneuvering in the Middle East which remains the key element of uncertainty for the time being.

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