Market Drivers June 01, 2015

Euro Struggles as week begins
UK PMI Manufacturing misses
Nikkei 0.03% Europe -0.04%
Oil $59/bbl
Gold $1187/oz.

Europe and Asia:
AUD Building Approvals -4.4% vs. -1.7%
CNY Final HSBC 49.2 vs. 49.2
EUR German Final PMI 51.1 vs. 51.4
GBP UK PM 52.0 vs. 52.7

North America:
CAD Current Account 8:30
USD PI/PS 08:30

USD ISM Manufacturing 10:00

Dollar continued to strengthen across the board on the first trading day of the week as positive sentiment towards the buck sent both euro and cable to sessions lows by mid-morning London dealing.

The euro slid through the 1.0900 level before finding a modicum of support at the figure, but remained on the back foot for much of the night as negotiations with Greece continued to drag on over the weekend with no prospect of resolution in sight. It appears that Greece will be able to cobble together the money for an IMF payment due June 5th but time is clearly running out and no accord seems imminent.

Today’s eco calendar only brought the final PMI readings which showed an improvement in the region with exception of Germany but the generally upbeat data had no impact on pair as it remained under pressure in early European dealing. The latest article by Greek PM Tsipras in French newspaper Le Monde accusing EZ dominant players of creating a “technocratic dictatorship” did not help matters as the escalated rhetoric made the market even more skittish.

In UK the PMI Manufacturing missed the mark printing at 52 versus 52.7 eyed. Although new orders were a bit higher, the drop in the headline reading and more alarmingly a decline in the employment sub-component from 50.9 to 50.3 unnerved the market and sent cable towards the 1.5200 figure. For now it continues to hover above that level, but could quickly drop through that figure as the day proceeds.

It is truly amazing at how quickly sentiment towards cable has soured. Just a few week ago the pair was trading at 1.5800 but now appears to be headed for a retest of 1.5000. Although dollar strength has been dominant factor in the move lower, cable is also suffering from market fears of a Brexit from the EZ. With the re-election of the conservatives the referendum on the issue will now be put to UK voters as early as next year, and while the consensus view is that UK will stay in the EZ, the risk of an exit is clearly weighing on the pound.

Ultimately, both euro and cable will rise or fall not on their own fortunes but on the strength or weakness of the dollar. To that end this week’s eco data could prove pivotal to the dollar rally. The economic data set starts today with Personal Income and Spending data and ISM Manufacturing report. The market is looking for small rise in ISM Manufacturing to 51.9 from 51.5 but as long as the reading remains comfortably above the 50 boom/bust level it’s unlikely to have much of an impact on trade. However if PI/PS comes in above the market expectations, the news could boost the dollar as it will show that the gains in employment are finally translating into better spending and income -all of which should serve to support the Fed’s desire to normalize rates sooner rather than later.

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