Market Drivers for September 03 2014

Conflicting claims on ceasefire from Russia and Ukraine send EURUSD seesawing
UK PMI services back above 60

Nikkei .38% Europe 1.54%

Oil $93/bbl

Gold $1263/oz.

Europe and Asia:

AUD GDP 0.5% vs. 0.4%

CNY Services PMI 54.4 vs. 54.2

EUR Final Services 53.1 vs. 53.5

GBP UK PMI Services PMI 60.5 vs. 58.6

North America:

USD BOC Statement 10:00 AM

Currency markets were whipped around by conflicting reports out of Russia and Ukraine as to the possible ceasefire in the region but risk currencies were generally better bid aided by better that expected data out of UK and Australia.

The EUR/USD briefly popped above the 1.3150 level after Ukraine announced that permanent ceasefire agreement was reached with Russia, but Russia quickly denied the claims stating that it is not a party to the conflict and the euro retraced its gains as markets awaited clarity on the issue.

But geopolitics was not the dominant factor in trade as better than expected data provided a boost to risk currencies after yesterday’s drubbing. Cable rose to a high of 1.6490 after hitting fresh six month lows earlier in Asian session trade as short covering kicked in on the back of better than expected UK PMI services data.

UK PMI services rose to 60.5 from 58.6 eyed – its best reading since October of 2013 and the first time it rose above 60 since that time. However the headline data masked some weakness as new orders component declined to 58.8 from 60.2 the month prior and employment and confidence readings fell to 15 month lows.

Still cable managed to bounce after suffering a sharp selloff in the wake of yesterday’s unsettling news that the Scottish independence vote is gathering momentum. The pair remains below the 1.6500 level for now, but further short covering flows in North America could push it above that figure as the day proceeds.

Elsewhere the Aussie also regained its footing as Australian GDP proved better than forecast at 0.5% versus 0.4% eyed and Chinese services PMI rose to 54.1 from 50.0. The marked improvement in Chinese services activity is a welcome sign that the country’s economy is starting to diversify from its manufacturing base. The Aussie gained more than 70 points of its lows and was once again trading comfortably above the 9300 level by midmorning European trade.

In North America today the US calendar is barren with only the Bank of Canada decision on the docket. The market expects little fresh news from the BOC, though given the improving economic data down south it would be interesting to see of Governor Poloz sounds more upbeat which could offer loonie some support. If on the other hand he remains resolutely dovish USD/CAD could push towards 1.0950 on growth differential expectations.

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