Market Drivers for March 5, 2013
UK PMI better than expected cable soars to 1.5200
RBA statement keeps same language Aussie bounces
Nikkei 0.27% Europe 1.60%
Oil $90.56/bbl
Gold $1579/oz.

Europe and Asia:
AUD RBA Rate Decision no change same language
AUD AiG Performance of Service Index 48.5 vs. 45.4
AUD Current Account Balance =14.7b vs. -15.4B
AUD Retail Sales 0.9% vs. 0.4%
JPY Labor Cash Earnings 0.7% vs. -0.3%
EUR Euro-zone Retail Sales
GBP PMI Services 51.8 vs. 51

North America:
USD ISM Non-Manufacturing Composite 10:00

Better than expected UK PMI Services, stronger consumer spending out of Australia and a relatively sanguine all helped to drive risk currencies higher and both cable and Aussie rebounded from the the lows set at the start of the week and European equity bourses posted strong gains on better investor sentiment.

Cable shot up to test the 1.5200 barrier in the wake of better than anticipated UK PMI Services report which printed at 51.8 versus 51.0 eyed. The index rose to a 5 month high while employment and confidence readings reached their best levels in 9 months. The PMI services number stood in sharp contrast to the UK Manufacturing and Construction reports this month which showed continued contraction in both sectors. Fortunately for the UK economy the services sector dwarfs both manufacturing and construction providing some optimism to investors that Q1 GDP may not contract for the second quarter in a row.

The better PMI Services reading also dovetails with stronger BRC report and the surprisingly robust labor data indicating that the slowdown fears regarding UK economy may have been slightly overblown. We noted yesterday that the PMI Services report was the last bastion of hope for sterling bulls and today’s beat should provide some support for the pair which found strong support underneath the 1.5000 level yesterday.

With market still structurally short sterling, the pair may see further rebound as the day progresses. There is a very chunky area of resistance at the 1.5220 level, but if GBPUSD can clear those offers, the pair could quickly rise towards the 1.5300 level as the short squeeze continues. For now it continues to consolidate between 1.5150 -1.5200 with 1.5000 confirmed support for the time being.

In Australia, the better than expected Retail Sales which rose 0.9% versus 0.4% eyed provided some relief and cover for the RBA. This was the first month out of the past three that saw Retail Sales rise indicating that consumer demand Down Under is starting to stabilize after several months of contraction.

Meanwhile the RBA repeated the last paragraph from prior month’s meeting verbatim, noting that there was “scope for further easing”. However, recent commentary from AU monetary officials suggests that authorities are satisfied with the current monetary accommodation and believe that the stimulus already provided has yet to y make its way full through the system. Indeed today’s statement was generally a bit more upbeat regarding growth going forward.

The news helped to push Aussie higher with the pair hitting 1.0250 before profit taking kicked in. The Aussie has been under relentless selling pressure for the past several weeks, but today’s mildly hawkish RBA statement suggests that the central bank will remain stationary for the foreseeable future as aggregate demand appears to be improving. The pair therefore may have made a short term bottom for now and could recover towards the 1.0300 level as the week progresses.

In Europe, the calendar has been relatively quiet with only final PMI readings and Retail Sales on the docket. The PMI report showed a slight improvement in French and the overall readings but remained deep within contractionary territory. Retail Sales saw a jump of 1.2% but much of it was anticipated as German Sales saw their best rise in 6 years. The EUR/USD churned higher towards the 1.3070 level but the rally ran out of gas by mid morning European dealing.

The pair too has found support near the 1.3000 level, but forward progress remains slow as investors continue to warily eye the developments in Italy. With no progress on the political front, currencies may take their cue from equities when North America comes on line Today’s ISM Services report will be the marquee event of the day and if the data beats like ISM Manufacturing did on Friday then the risk rally is likely to extend.

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