Market Drivers September 3, 2017
RBA remains neutral
EUR, UK data misses
Nikkei -0.63% Dax 0.90%
Europe and Asia:
AUD RBA on hold
EUR PMI 55.7 vs. 55.8
GBP UK PMI Services 53.2 vs. 53.5
USD Factory Orders 10:00
USD Economic Optimism 10:00
The dollar was mixed on the first full trading day of the week rising against the euro and cable which were hobbled by their own weak economic data, but falling against the yen and the Aussie in generally cautious dealing as traders slowly made their way back to their desks.
North Korea once again stoked risk aversion flows as reports filtered out that the nation was preparing another ICBM test for later this week. The North Korean conflict remains at a slow boil and continues to weigh on USDJPY which traded below 109.50 in Asian session dealing, but the pair shows an impressive degree of resilience given all the negative factors thrown at it over the past several days. Despite the geopolitical tensions and the weaker NFPs last Friday, USDJPY is holding above the 109.00 figure suggesting that if the geopolitical tensions were to ease, the pair could quickly pop above the 110.00 level.
Still, the risks with North Korea are unknown and any escalation of military response from the US will provoke much stronger sell off in the pair so longs are likely to be skittish until the market gets a better understanding of the geopolitical endgame in the region.
Meanwhile on the economic data from both EZ and UK saw weaker than expected PMI readings with EZ composite coming in at 55.7 vs. 55.8 while UK PMI Services printed at 53.2 vs. 53.5. While the slowdown in growth was very small, it nevertheless suggested that momentum has stalled and the news was enough to prompt a small decline in both currencies with euro getting the brunt of the selling as the pair dipped towards 1.1880. After last week’s reversal, the EURUSD is clearly in the profit taking mode and traders remains wary that Mario Draghi may use this month’s ECB presser to jawbone the currency lower to keep it away from the key 1.2000 level.
Lastly, the Aussie got a boost from the RBA today, which kept rates on hold and generally reaffirmed its neutral stance, but Governor Lowe’s post event remarks focused on the dangers of further lowering rates this signaling a more hawkish tone which helped push the pair towards session highs at .7980. The Aussie remains just below the key .8000 level but if US yields begin to drift lower today, the pair could make another run at that key resistance level.
In US today the calendar is very quiet with only a smattering of second tier data and some FedSpeak. For now, the risk aversion flows remain in full force with EURJPY breaking the 130.00 figure and looking like it may drift lower as the day proceeds.