Cable Recovers Post Weaker PMI as Focus Turns to US

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Market Drivers for December 4, 2013
Australian GDP misses sending Aussie below 9050
UK PMI Services misses slightly
Nikkei -2.17% Europe .35%
Oil $97/bbl
Gold $1216/oz.

Europe and Asia:
AUD AIG Services 48.9 vs. 47.9
AUD GDP 0.6% vs. 0.8%
GBP UK Services PMI 60 vs. 62.1
EUR Retail Sales -0.2% vs. 0.2%
EUR GDP 0.1% vs. 0.1%

North America:
USD ADP 8:15
USD Trade 8:30
USD ISM Services
CAD BOC Statement

A surprisingly softer than expected UK PMI Services reading put some mild downward pressure on cable in morning London dealing, but the pair managed to stabilize above the 1.6350 level as the pace of economic activity remained better than anywhere else in the G-7 universe.

UK PMI Services printed at 60 versus 62.1 eyed. This was only the second time this year that the reading missed its forecast as services activity leveled out somewhat after increasing rapidly throughout most of the year. The employment index dipped to 54.2 from 56.2 in October but remained well above the 50 boom/bust line.

Overall the composite PMI came in at 60.5 versus 61.6 the month prior as the decline in services offset the gains construction and manufacturing. Still the PMI data shows a vibrant UK economy that continues to perform far better than any of its advanced industrialized neighbors in Continental Europe.

The news initially sent cable to a low of 1.6322 – indeed the pair was lower ahead of the release on rumors of a softer number – but it quickly found buyer at that level and rose above 1.6350 by mid morning London dealing. Cable remains within striking distance of the yearly highs at 1.6440 and if it can break above that level the temptation to run stops at the key 1.6500 figure will likely propel the unit through that barrier.

Meanwhile in Australia the reaction to a miss in the GDP figures was not nearly as sanguine. The Australian GDP printed at 0.6% versus 0.8% eyed as the slowdown in mining weighed on overall growth and offset some of the improvements in the services sector. The news crushed the Aussie which tumbled through the key support level of 9050 before finally finding some bids ahead of 9000 figure.

The currency markets remain concerned about further easing by an increasingly aggressive RBA as it tries to lower the exchange rate in order to rebalance the economy. The downside pressure therefore is likely to remain especially if the next labor data report proves disappointing.

In North America today the market with get a glimpse at two key reports with ADP and ISM Services released during the morning hours. Both releases could be key to forecasting the NFP numbers due this Friday and could affect the expectations regarding the taper. The dollar has been on a bit of a seesaw ride this week as sentiment regarding the taper has shifted on a day to day basis, but today’s reports could either confirm or refute the taper expectations as they offer the latest read on the state of the US economy.

If the data does beat to the upside with ADP posting anything better than 190K and ISM printing at 56 or higher the greenback could catch a strong bid and USD/JPY could once again attempt to push above the 103.00 level. If on the other hand the data misses fears of delay could send the pair below 102.00 once again.

Boris Schlossberg
Managing Director

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