Risk On! EZ Growth Hits 80 Month High – FX Looks to ADP

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Market Drivers January 4, 2018
EZ growth at an 80 month high
UK PMI Services beats
Nikkei 3.26% Dax +0.96%
Oil $61/bbl
Gold $1313/oz.
Bitcoin $14533

Europe and Asia:
EUR EZ PMI Composite 58.1 vs. 58
GBP UK PMI Serives 54.2 vs. 54.1

North America:
USD ADP 08:15

Both euro and cable firmed up in early European trade today after data from the region showed steady improvement in economic growth, while the commodity currencies hit their best levels in months as commodity prices continued to rally.

In Europe the EZ PMI Composite hit 58.1 – its best level in 80 months as the growth in the region continues to expand and accelerate. The news pushed EURUSD back to 1.2050 with traders now anticipating a clear signal from the ECB that the central bank will commence taper operations relatively soon. As the relative real yields between EZ and US continue to narrow the flows into EURUSD should persist and the pair now looks ready to challenge its multi-year highs at 1.2100.

In UK the PMI Services report came in slightly better at 54.2 vs. 54.1. According to Markit, “December data indicated that business activity growth picked up across the UK service sector, but the latest survey also found softer rises in new work and employment numbers at the end of 2017. At the same time, service providers indicated another marked increase in their average prices charged, which was overwhelmingly linked to strong cost pressures. Survey respondents signaled the fastest rise in operating expenses for three months, reflecting higher transportation costs, staff salaries and utility bills in December.”

Cable traded back to 1.3550 on the news and could try to run the 1.3600 stops later in the day if the anti-dollar flows continue into the North American open.

In North America today all eyes will be on the ADP report with the market looking once again at the 191K print on the jobs front. A solid gain nearly 200K would provide some support for the buck with USDJPY possibly running the 113.00 figure on assumption that tomorrow’s NFP will confirm that economic growth is finally turning into wage growth. However a miss in ADP today could really aggravate the anti-dollar flows and push the EURUSD to a test of the 1.2100 level before the day’s end.

Boris Schlossberg
Managing Director

2 thoughts on “Risk On! EZ Growth Hits 80 Month High – FX Looks to ADP”

  1. It would be very interesting to have your comment on the curious fact that Southern Europe’s weak economies all have lower cost of capital (2y bonds!) than the World leading economy of USA?

  2. Italy, Portugal, Spain and now even Greece all have lower cost of capital (2y bonds) than USA!?! How can this be possible to justify with free market fundamentals?

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