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Forex Research - Pound Destroyed as Services PMI Hits Record Low – Will BoE Cut -125bp?

Pound Destroyed as Services PMI Hits Record Low – Will BoE Cut -125bp? Last Updated 12/3/2008 5:35:54 AM EST (GMT +5)

Top Stories

• Japan mulls 10 Trillion yen spending over 3 years to support jobs

• Asian autos Honda, Hyundai scale back productions as demand, currency strength weighs

• US carmakers seek $34 Billion bailout may be ready by Monday

• US car sales at worst levels since 1982 - 10M units run rate

• PMI services from both EZ and UK at record lows

• UK companies reporting general lack of credit will BoE go to -125bp?

• Equities soggy across the board

• Oil targeting $47/bbl

• Gold at $770

Overnight Eco

• AUD AIG Services Index 37.8 vs. 42.1 prior

• GBP Nationwide Consumer Confidence 50 vs. 54 expected

• AUD GDP 0.1% vs. 0.2% eyed

• NZD ANZ Commodity Prices -7.2% as slide continues

• EUR Final Services PMI 42.5 vs. 43.3 called lowest print so far

• GBP Services PMI 40.1 vs. 41.2 forecast

• EUR Retail Sales -0.8% vs. -0.4%

Event Risk on Tap

• USD Challenger Job Cuts

• USD Non-Farm Employment Change market looks at -200K

• USD Revised Non-farm Productivity 1.0% forecast

• USD Revised Unit Labor Costs 3.6%

• USD ISM Non-Manufacturing PMI 42.5 vs. 44.4 last expected

Price Action

• USD/JPY still finding support at 9300 but trades with downside bias

• AUD/USD holds 6400 as GDP remains positive albeit slightly lower

• GBP/USD pounded off the UK open as Services PMI drops to record lows

• EUR/USD pushes lower to test 1.2600 as eco data remorselessly grim

Pound Destroyed as Services PMI Hits Record Low – Will BoE Cut -125bp?

Another night of remorselessly grim economic data from Europe pushed both euro and pound lower as currency traders began to price in the possibility of larger than anticipated interest rate cut from the BoE at tomorrow’s MPC meeting. Both EZ services PMI and UK Services figure hit record lows, with EZ printing at 42.5 vs. 43.3 projected while the UK numbers were barely able to hold the 40 level coming in at 40.1 vs. 41.2 forecast.

The UK report was particularly troubling because companies surveyed indicated that they were having difficulty obtaining credit suggesting that economic contraction may become more severe in Q1 of 2009. Cable collapsed almost from the open of London trade ultimately dropping more than 200 points as currency traders anticipated the horrid data. The question ahead for the market is whether the BoE will surprise yet again by slashing rates more than the -100bp forecast. If Mr. King and company do lower rates by -125bp or more that would be the first time since the 1600’s that UK central bank rates would fall below the 2.00% barrier.

Clearly monetary stimulus, at least for now, is having little positive impact on the UK economy as banks tighten lending standards and essentially hoard their newly acquired capital from the UK government. Nevertheless, UK monetary authorities have few other options to consider as they desperately try to stabilize the economy. Awhile back we facetiously noted that UK could be the next Iceland and while that comment was made in half jest, the risks to UK economy continue to grow and pound remains vulnerable to more sell offs especially if UK labor demand deteriorates further exacerbating the economic contraction.

Meanwhile labor demand will also be the focus in today’s North American session as traders see a possible preview of the NFP data on Friday from the ADP and the ISM Non-Manufacturing reports due at 13:15 GMT and 15:00 GMT respectively. The market already expects a large decline, but the key pivot will likely be the -300K figure. If the numbers today’s suggest that Friday’s payrolls will lose that much or more risk aversion may rise throughout the day with EUR/USD testing the 1.2500 handle while cable could slip all the way to 1.4500. Still as we noted yesterday, the knee jerk sell equities/sell risk currencies trade is starting to lose its power and EUR/USD is unlikely to suffer substantial damage even if the US news is worse than forecast.

FX Upcoming

Currency GMT EST Release Expected Prior

USD 12:30 7:30 USD Challenger Job Cuts (YoY) (NOV) 78.9%

USD 13:15 8:15 USD ADP Employment Change (NOV) -200K -157K

USD 13:30 8:30 USD Non-Farm Productivity (3Q F) 1.0% 1.1%

USD 13:30 8:30 USD Unit Labor Costs (3Q F) 3.6% 3.6%

USD 15:00 10:00 USD ISM Non-Manufacturing Composite (NOV) 42.5 44.4

About The Author

Schlossberg has more than 20 years experience financial trading on Wall Street. His daily currency research appears in numerous newspapers worldwide and Schlossberg serves as a regular contributor to CNBC's Squawk Box and Bloomberg radio and television. Read more >>

DISCLAIMER: This forum and the information provided here should not be relied upon as a substitute for extensive independent research before making your investment decisions. Global Forex Trading is merely providing this column for your general information. This forum and its information does not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision based upon this forum or any information contained within. In addition, any projections or views of the market provided by the author may not prove to be accurate. Global Forex Trading and Boris will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained in this column. Global Forex Trading and Boris do not render investment, legal, accounting, tax or other professional advice. If such advice is sought, or other expert assistance is required, the services of a competent professional should be sought.

 

 

 

 

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Amazing Trader EVENT RISK Calendar:

Wed 18 Oct
12:30 US- Housing Starts & Permits
14:30 US- EIA Crude
Thu 19 Oct
01:30 AU- Employment
08:30 GB- Retail Sales
12:30 US- Weekly Jobless
Fri 20 Oct
12:30 CA- Retail Sales & CPI
14:00 US- Existing Homes Sales

Forex Trading Outlook


Trading Opportunities


  • POTENTIAL PRICE RISK: HIGH Tue-- 08:30 GMT GB- CPI top tier confirmation of Inflation.

  • POTENTIAL PRICE RISK: Medium Tue-- 09:00 GMT DE- ZEW Survey second most important German monthly Survey.

  • POTENTIAL PRICE RISK: Medium Tue-- 09:00 GMT EZ- final HICP revision to flash report. Revisions are usually minor.

  • POTENTIAL PRICE RISK: Medium Tue-- 13:15 GMT US- Industrial Production. Top output indicator.



  • POTENTIAL PRICE RISK: Medium Wed-- 12:30 GMT US- Housing Starts and Permits revision to flash report. Useful housing leading indicator.

  • POTENTIAL PRICE RISK: Medium Wed-- 14:30 GMT US- EIA Crude. Top WTI inventory measure.



  • POTENTIAL PRICE RISK: Medium Thu-- 01:30 GMT AU- Employment. Top economic indicator.


  • POTENTIAL PRICE RISK: Medium Thu-- 02:00 GMT CN- GDP. Top economic indicator.


  • POTENTIAL PRICE RISK: HIGH Thu-- 08:30 GMT GB- Retail Sales. Top consumption indicator.


  • POTENTIAL PRICE RISK: Medium Thu-- 12:30 GMT US- Weekly Jobless. Employment Indicator.



John M. Bland, MBA
co-founding Partner, Global-View.com

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