Dollar Rebounds After Horrid Week

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Market Drivers August 1, 2016

CNY PMI bit mixed but steady
EZ PMI Manufacturing beats
Nikkei 0.40% Dax 0.65%
Oil $41/bbl
Gold $1356/oz.

Europe and Asia:
CNY PMI 49.9 vs. 50.0
CNY Private PMI 50.6 vs. 48.7
EUR PMI Manufacturing 52 vs. 51.9
GBP UK PMI Manufacturing 48.2 vs. 49.1

North America:
USD ISM Manufacturing 10:00
USD Construction Spending 10:00

Dollar rebounded somewhat on the first trading day of the week after suffering one of its worst declines in months the week prior. The greenback was higher across the board in quiet and steady trading rising up to 102.68 against the yen as shorts covered some of their profits.

The economic data offered few surprises coming in essentially in line with expectations which proved to be a relief to risk flows as the news suggested that global demand may have stabilized.

In China the PMI manufacturing data was slightly mixed with official PMI readings coming in at 49.9 – just below the 50 boom/bust line but the private PMI report fared better showing an uptick to 50.6 from 48.7. This was the first time since March that Caixin PMI reading printed in expansionary territory indicating that demand in China’s most important sector is rebounding slightly.

In Europe the PMI readings were also steady with PMI Manufacturing coming at 52 versus 51.9 as both German and French PMI readings were slightly better that flash estimates. Germany continues to power the Eurozone as its PMI Manufacturing report remains comfortably above the 50 level at 53.8.

The only PMI reading that badly missed its mark was the report from UK which saw the data slip further into contractionary territory to 48.2 from 49.1 eyed. The fallout from Brexit continues with new orders plunging to 48.3 from 56.3 while output declined to 47.8 from 53.6. Cable sold off slightly on the news breaking below the 1.3200 level as there was little evidence of any stabilization in UK data. Still with PM May not rushing any plan to exit the EU, the worst of the sentiment hit for the UK economy may be over and unless the market sees a sharply lower PMI Services report, the pair is likely to hold the 1.3000 figure which has proven to be solid support for the past month.

In North America today the market will get a glimpse of the ISM Manufacturing data which is expected to essentially match last month’s reading of 53.1. There is reasonable chance that it can actually beat the mark given the strong reading recorded by Friday’s Chicago PMI in which case the greenback rally could extend with EUR/USD testing 1.1150, cable dropping to 1.3150 and Aussie drifting towards .7550 as the day progresses.

Boris Schlossberg
Managing Director

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