Key Points
Yesterday's strong ISM number has shifted the near-term USD bias to the upside.
Weak US data during the rest of this week will be required to support current short USD positioning.
1.3540 and 1.3460-1.3500 are key supports on EURUSD.
Eurozone PMIs, German unemployment, UK mortgage approvals, US ADP employment and factory orders due today.

Market Outlook
Yesterday's surprisingly strong ISM manufacturing number has thrown some doubt over the bearish US economy story and in this regard is a clear danger to current short USD positioning. Could the ISM strength be a one-off? It is possible, but until this is confirmed one has to take the data at face value. The other main release of yesterday was the much weaker than expected pending home sales number, which does not bode well for existing home sales in coming months and suggests that things are still not right in the housing market. On this basis, any optimism about the US will remain cautious. The market will wait to see what the rest of this week's data brings - nonmanufacturing ISM tomorrow and the employment report on Friday - but as things currently stand there is now a considerable degree of corrective upside risk on the USD. Some weak numbers during the rest of the week will be required to counter this bias.

1.3540 should be tested today on EUR-USD and if this breaks the main short-term support area at 1.3460-1.3500 would be exposed. While GBP sentiment should be supported to a certain degree by the prospect of the events over the next couple of weeks (MPC meeting and Inflation Report), corrective risk is also in place for cable, especially with so much discounted already in the UK money market. Further downside risk would develop on any break below Friday's low of 1.9865. USD-JPY would also carry upside risk if 120.20 breaks.

The stronger USD is putting pressure on positioning elsewhere, with previous high-yielding favourites like the NZD and the AUD coming under pressure. There is downside risk on the AUD down to 0.8150 during this move and it could easily extend to 0.8050 if pronounced USD strength is seen elsewhere. The NZD has risk down to 0.7260. The high-yield attributes for both these currencies remain firmly intact, but short-term movement is all about position adjustment in response to better news about the US.

Day Ahead
Eurozone - PMIs and German labour data are likely to confirm the strong economic backdrop in the Eurozone and will help to maintain ECB rate hike expectations. Increasing evidence of strength in the German labour market will only boost confidence in the likelihood of the German consumer sector adding weight to the recovery over the coming year. However, market impact may be minimal in the current corrective environment.

UK - seasonally adjusted mortgage approvals for all lenders is due this morning and the market will be looking for evidence of higher interest rates eating into housing market confidence. Approvals are off the highs seen in Q4, but will need to start moving below the 110k or even 100k to suggest genuine signs of weakness. Consumer lending data is also due.

US - second line labour market measures such as ADP employment and the Challenger survey of job cut announcements are due today. The ADP measure has not had the best of records in predicting payrolls in recent months and should really be ignored, but any unusual numbers (especially on the upside) may generate some market impact. Factory orders are also due and may reveal some further revisions to the already released (and strong) durable orders numbers.

Diary
Data/event BST Consensus*
 
CH PMI manu (Apr) 08.30 63.5
IT PMI manu (Apr) 08.45 53.9
FR PMI manu (Apr) 08.50 54.3
DE Unemployment (Apr) 08.50 -40k
DE Employment (Mar) 08.50 30k last
DE PMI manu (Apr) 08.55 57.3
EU PMI manu (Apr) 09.00 55.7
NO Retail sales (Mar) m/m 09.00 0.3%
GB Consumer credit (Mar) 09.30 ?0.9bn
GB Net lending secured on dwellings (Mar) 09.30 ?10.0bn
GB Mortgage approvals (Mar, sa) 09.30 117k
EU Unemployment rate (Mar) 10.00 7.2%
US Mortgage apps - purchases w/w 12.00 3.7% last
US Challenger layoffs (Apr) y/y 12.30 -24.6% last
US ADP employment (Apr) m/m 13.15 105k
US Factory orders (Mar) m/m 15.00 2.0%
JP Market Holiday (tomorrow)  
Latest data Actual Consensus*
US ABC consumer conf (w/e Apr 29) -5 -7 last
AU RBA rate announcement unch unch
JP Monetary base (Apr) y/y -12.2% -12.2%
SE PMI manu (Apr) 58.5 62.0
* Consensus unless stated