Cable Takes Out 1.6400 As Manufacturing Growth Explodes

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Market Drivers for December 2, 2013
Cable over 1.6400 as UK Manufacturing PMI beats
USD/JPY hits 6 month highs
Nikkei -0.04% Europe -0.22%
Oil $92/bbl
Gold $1238/oz.

Europe and Asia:
AUD Co Operating profits 3.9% vs. 1.1%
EUR Final Man PMI 51.6 vs. 51.5
GBP UK PMI 58.4 vs. 56.5

North America:
USD ISM Manufacturing 10:00
USD Construction Spending 10:00

It’s been a lively open to the week’s trade with cable setting fresh yearly highs in Asian and early European trade while euro lagged behind pushed lower by massive EUR/GBP sales. UK Manufacturing PMI came in better than expected printing at 58.4 versus 56.5 projected as the order book grew at the fastest pace in 19 years.

UK Manufacturing is enjoying an unexpected Renaissance and while the sector remains a relatively small part of the UK economy it nevertheless is likely to boost Q4 GDP as the country continues to generate some of the best growth in the G-7 universe. Cable was already well bid ahead of the report and soared to a fresh high of 1.6440 in early Asia trade as long term stop levels were triggered and the pair remained above the 1.6400 level post news as investors remain enthused about the pair.

The vast outperformance of UK versus the scelrotic growth of the Eurozone is strating to reflect itself in the EUR/GBP cross which tumbled below the 8250 level in London trade today and dragged EUR/USD below the 1.3550 level before some bargain hunting kicked in. The disparity between UK and the continent may increase as the week progresses especially if UK PMI services also registers and upside surprise. That could push cable through the key 1.6500 figure and take EUR/GBP towards 8200 – a level it has not seen since the start of this year.

Elsewhere in Australia the Aussie continued its recovery from 9050 hitting a high of 9162 in Asian trade on the back of better PMI Manufacturing numbers out of China. Tomorrow the market will focus on the RBA policy meeting, but few market analysts expect any action from Governor Stevens and company. Unless Australian monetary authorities escalate their rhetoric against the unit the Aussie could see a further bounce on relief rally post the event.

In North America today the week kicks of a crucial stretch of economic news that could well determine if the Fed decided to taper by early next year. The market will focus on today’s ISM Manufacturing data which is expected to print a bit softer than the month prior at 55.2. However last week’s Chicago PMI report surprised to the upside and todays ISM could do the same. If the data does prove to be better than forecast its likely to push USD/JPY through the key 103.00 level and put it on a path towards the yearly highs at 103.65.

Boris Schlossberg
Managing Director

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