Market Drivers February 1, 2018
GE yields keep euro bid
UK PMI Manufacturing lowest since June 2017
Nikkei 1.68% Dax 0.31%
Europe and Asia:
AUD Building Permits -20% vs. -8%
GBP UK PMI Manufacturing 55.3 vs. 56.6
CAD PMI Manufacturing 9:30
USD ISM Manufacturing 10:00
It’s been another choppy session of twists and turns in Asian and early European trade as both euro and cable reversed earlier losses and hit sessions high by mid-morning London dealing fueled by a spike in yields.
Although US yields have been rallying as well and are considerably higher than their German counterparts in absolute terms, the relative pace in gain in German bunds has been astounding because they are coming off such a low base.
Today US yields were up 1.8 basis points while Bunds gained 3.5 basis points but in percentage terms the increase was almost 10 times are as large, sending FX flows into the euro and pushing the pair towards the 1.2450 level.
The dollar meanwhile held its own against the yen, with USDJPY clearing the key 109.50 barrier as the pair appears to have established a near-term bottom at the 108.50 level. With ADP report signaling that NFPs should print within 175-200K vicinity and with the Fed appearing resolute to normalize monetary policy in earnest the decline in the dollar may be coming to an end for the near term.
Today the market will get a glimpse of the ISM Manufacturing report, which is generally considered to be a second tier data point, but it will be interesting to see if lower dollar helped spur more demand in the sector. The forecast is for a dip to 58.8 from 59.3 the month prior.
With nothing else on the calendar until Friday’s NFPs the action in FX will likely remain centered on the yield story. For now, the dollar appears to have stopped its decline against the yen, but dollar bears are still trying to push EURUSD and GBPUSD to fresh yearly highs, so 1.2500 in former and 1.,4300 in later could be key battleground levels as the day proceeds.