Key Points USD soft against EUR & GBP ahead of CB meetings, but this should be reversed later in the week. AUD and NZD continue to prosper - AUD gains should be more durable. UK/Eurozone service sector PMIs, US nonmanufacturing ISM feature today.
Market Outlook High-yielders like the AUD and the NZD have made further advances overnight, with the AUD threatening resistance at 0.8360 (ahead of the recent high of 0.8392) and the NZD moving beyond the recent high at 0.7493. The NZD continues to lead the way and the fact that it is making new highs does leave upside risk for today. However, tomorrow night's RBNZ meeting outcome may fail to reveal anything freshly bullish and could even see a further protest against NZD strength. Only then will we see whether this move is durable. Below 0.7475 is needed to take some of the steam out of the move and below 0.7440 would be more negative. In Australia, expectations about tonight's Q1 GDP data (see below) have been on the rise and this has also been supporting the AUD. Overall, we would still view the AUD more favourably than the NZD as the economy seems to be on a sounder footing. Current support on AUD-NZD is at 1.1100-30 ahead of 1.1055.
The prospect of this week's ECB and MPC meetings continues to offer support for GBP and the EUR against the USD. Yesterday's cable move above 1.9900 was impressive and leaves some upside risk towards 1.9975-2.000, although this short-term strength should be reversed later in the week given the better mood in the US and the likelihood of the MPC leaving rates unchanged. EUR-USD has some upside risk to 1.3520 but here too any gains should eventually be given up if the ECB fails to advance existing hawkish sentiment any further. Service sector PMIs and the US non-manufacturing ISM feature today (see below).
Day Ahead Eurozone - PMI services numbers are due today after last month slipping back to their lowest level since October. However, at 57.0 the index can hardly be described as weak and fresh developments in this headline number that will unsettle ECB rate expectations seem unlikely today. The ‘prices charged' component could be more interesting, after edging up to a 10-mth high of 54.4 last time. This is the more likely avenue through which market impact may be felt today.
UK - the PMI services number in the UK eased back to 57.2 last month, the lowest since September, but is still an indication of robust growth. With output price indicators generally on the rise in the manufacturing sector, the ‘prices charged' component of the services survey will be watched closely. Strength has been limited thus far, with last month's fall to 53.9 from 55.3 leaving it at its lowest level since December. Any major strength or weakness in today's survey could have some impact on GBP with the market a little jumpy ahead of Thursday's MPC outcome.
US - the ISM for the non-manufacturing sector is the main data feature today. Last month's ISM non-manufacturing number was stronger than expected at 56.0 and another decent showing for May will help to reinforce the belief that US economic conditions are improving (already boosted by last week's solid manufacturing ISM). Bernanke takes part (via satellite link) in a panel discussion with Trichet and Fukui about housing and the economy, although it seems unlikely that any new thinking will be revealed.
Australia - Q1 GDP and the latest RBA rate announcement appear tonight. An unchanged rate outcome seems highly likely, although the market will be watching this week's data closely given the ongoing strength in many key releases like credit growth. Optimism about the GDP outcome has been rising following recent revelations of strong Q1 readings for capex, inventories and company profits. Today's current account deficit also confirmed that net exports will be much less of a drag on growth than they were in Q4. The risks to tonight's number would appear to be on the upside, although the consensus number of 1.2% published above does reflect the most recent upward revisions from economists and compares with the 1% consensus in place last week.
Diary Data/event BST Consensus* Market holiday - Denmark IT PMI services (May) 08.45 54.0 FR PMI services (May) 08.50 58.6 DE PMI services (May) 08.55 57.9 EU PMI services (May) 09.00 57.1 GB PMI services (May) 09.30 57.0 EU Retail sales (Apr) m/m 10.00 0.5% US Chain store sls (w/e Jun 2) w/w 12.45 0.0% last US Bernanke/Trichet/Fukui in joint conference discussion on 'housing and the economy' 13.15 US Redbook sls (w/e Jun 2) m/m 13.55 2.2% last US ISM non-manu (May) 15.00 55.6 US ABC consumer conf (w/e Jun 3) 22.00 -13 last AU RBA rate announcement 00.30 unch AU GDP (Q1) q/q 02.30 1.2% Latest data Actual Consensus* GB BRC retail survey (May) y/y 1.8% 2.4% last AU Current account (Q1) -A$15.4bn -A$14.8bn AU Building approvals (Apr) m/m 8.1% 2.5% ES PMI services (May) 56.2 54.2 last * Consensus unless stated
Disclaimer: All information on this web site is subject to change. The use of this web site constitutes acceptance
of our user agreement. All publisher financial articles at
FXtree.com are those of the individual authors and do not represent trading recommendations
of FXtree.com or its staff.
