Worst PMI Drop in 4 Years Send Cable Tumbling

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Market Drivers June 03, 2015

Euro drifts to 1.1100 as Greece talk drag on
UK PMI Services misses badly
Nikkei -.34% Europe 0.20%
Oil $60/bbl
Gold $1188/oz.

Europe and Asia:
AUD GDP 0.9% vs .0.7%
GBP UK Services PMI 56.5 vs. 59.2
EUR Retail Sales 0.7% vs. 0.7%

North America:
USD ADP 08:15

EUR ECB Presser 8:30

USD ISM Services 10:00

It’s been a quiet night of consolidation in Asian and early European trade today with the dollar regaining some of the ground especially against cable which was battered by weaker than expected PMI data.

UK Services PMI – the most important of the country’s PMI reports – printed much weaker than expected at 56.5 versus 59.2 indicating a slowdown in UK’s most important economic sector. This was the sharpest drop in four years and bodes poorly for the UK GDP growth in Q2.

Chris Williamson of Markit noted that, “Recent weakness in manufacturing and construction has spread to services. Overall growth in May across all three sectors was the lowest since December and the second-weakest for two years. The surveys point to GDP growing at a quarterly rate of just 0.4% in May, raising doubts about the ability of the economy to rebound convincingly from the weakness seen at the start of the year. “

Cable took a dive on the news dropping more than 100 points off session highs to hit a low of 1.5253 before finally finding a modicum of support ahead of the 1.5250 level. The pair has been under assault for most of the past month as dollar flows and Brexit worries have weighed on the pair. Now the worsening economic climate suggests that the BoE is likely to remain stationary at least until 2016 which is likely to temper any upside moves in the pair. Any further dollar strength could push it to a retest of the 1.5000 level as the week proceeds.

The euro was also marginally weaker dropping to a low of 1.1105 in morning European dealing as talks with Greece dragged on and number of minister issued contradicting statements. For now there is no deal and time continues to tick as the country’s new debt payments are due by June 5.

Greece will no doubt be the subject of Q&A session at ECB’s monthly press conference, but the market expects no new policy guidance from Mr. Draghi as he is likely to reaffirm the QE targets that the central bank has set.

Also in North American session the market will get a good glimpse at the ADP report and the ISM Services release and if both of those print above expectations USD/JPY could easily soar through 125.00 once again as expectations of a Fed rate hike will firm up and yesterday’s selloff move will be seen as nothing but mild profit taking.

Boris Schlossberg
Managing Director

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