The Great Euro Squeeze Continues

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Market Drivers May 30, 2015

Thin market conditions whip EUR around
UK PMI Manufacturing misses badly
Nikkei 0.06% Europe closed
Oil $59/bbl
Gold $1181/oz.

Europe and Asia:
CNY Chinese PMI 50.1 vs.50
AUD PPI 0.5% vs. 0.1%
GBP UK PMI Manufacturing 51.9 vs. 54.6

North America:
USD ISM Manufacturing 10:00

With many of the markets in Asia and Europe closed for May Day holiday its been a whippy session in FX marked by rapid moves in the EUR/USD while most of the other pairs remained docile.

The Great Euro Squeeze continued today with the pair setting fresh month highs but stalling ahead of the 1.1300 figure in moring European dealing. The pair continues to benefit from the realignment in the dollar trade as more and more market participants bail from their dollar longs on the assumption that the Fed is likely to stay stationary for the foreseeable future.

Although having risen nearly 800 pips since its lows, the euro rally is clearly getting long in the tooth and the pair is likely to stall at these levels once all the late dollar longs have been cleared.

On the economic front the only data of note was the UK PMI Manufacturing report which missed its mark badly printing at 51.9 versus 54.6 coming close to the contractionary territory. According to Rob Dobson of Markit, “Growth remains largely consumer-led, with the strong performance of the consumer goods sector in stark contrast with other sectors. Companies that supply manufactured inputs to other firms reported a return to contraction, suggesting other firms are planning to cut production”.

That is not good news for cable bulls as UK economic data continues to show signs of a slowdown. Next week’s UK PMI Services report will now become pivotal to the market and if it misses badly sterling could quickly return to the 1.5000 figure.

In North America traders will get a look at the ISM Manufacturing report and given the better prints in Chicago PMI and Philly Fed readings it could surprise to the upside. Any positive reading in ISM should help stem this relentless euro rise especially if the market narrative begins to change to the idea of a H2 US rebound. Another miss on the other hand would only exacerbate this euro squeeze and could push the pair through 1.1300 before the day’s end.

Boris Schlossberg
Managing Director

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