â€¢ Japanese Yen: Bounces above 103.50 as pressure relieves
â€¢ Euro: PMI services remain expansionary, retail sales rebound
â€¢ Pound: PMI Services surprises to the upside
â€¢ US Dollar: ISM Non-Manufacturing on tap
Pound Whipsaws, Dollar Awaits ISM Services â€“ How Bad Will It Be?
Very whippy night in the currency markets, marked by contradictory data which created wide trading ranges hurting both longs and shorts in the process. In UK today the news started on the downside as Nationwide consumer confidence data plunged to its lowest level in 3 years, reigniting speculation that the BoE may surprise the market by lowering rates tomorrow after the MPC meeting. Sterling plummeted by more than 100 points with selling flows exacerbated by redemption of nearly 15 Billion in Gilts due this Friday.
However, the much better than expected PMI Services survey which printed at 54 versus the forecast of 52, quickly reversed the dour mood and cable recovered to the 1.9800 figure. The PMI services report showed a combination of sustained growth and continued price pressures in the system that is very likely to keep the BoE stationary for the time being. Furthermore, the rise in business expectations which reversed the drops of the prior two moths bodes well for pound bulls who argue that UK economy is nowhere near as vulnerable to a slowdown as the US economy. This week UK economic data has shown surprising resiliency and should the positive news continue sterling may be able to shake off the negative sentiment that has enveloped the currency over the past several months and make another run at the 2.0000 figure. Our technical analysis make the same conclusion British Pound on the Brink of a Bullish Break.
Meanwhile, the EURUSD mainly marked time today oscillating in a 1.5140-1.5220 range as it continues to hug the 1.5200 level looking for direction. Data overnight was essentially in line, with EZ retail sales staging a modest rebound from the drop the month prior. The EZ consumer appears to have gained a modicum of confidence buoyed by strong euro and expansionary employment environment. This however, is only a tiny improvement in attitude as energy costs and credit crunch concerns continue to weigh on consumer spending. Nevertheless, the news from the EZ remains supportive of EZ hawkish stance and rates will remain at 4% for the foreseeable future.
The euro rally appears tired, with traders needing fresh reasons to sell the greenback, but the move may not be exhausted just yet. Todayâ€™s ISM Non-Manufacturing and more importantly Fridayâ€™s NFP release may be the deciding factor in determining if the pair rockets higher to challenge the 1.5300 area or drops back to the 1.5000 support. If the employment component of the ISM Manufacturing signals the possibility of a second straight month of job losses in the NFP, the euro rally could resume.
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