The European PMIs have added to the spice of trading this morning, which has seen the dollar only manage some slight respite amid the recent selling pressure. It has been a story of yen weakness and sterling strength today as the risk appetite in currencies has picked up. The news this morning that both Chinese Manufacturing PMIs were in expansion territory was greeted favourably by commodity sectors, with the Aussie dollar also gaining as the Reserve Bank of Australia stood firm on rates. A mixed set of beats and misses in the Eurozone PMIs resulted in the composite regional number falling to a 7 month low. The Euro has not been too badly impacted, held up by the Chinese data and the slight improvement in regional unemployment which fell to 11.6%.
The big move in the morning has been on Sterling, which saw its manufacturing PMI jump unexpectedly to 57.5 (56.8 had been pencilled in). This will ramp up the pressure on the Bank of England which, despite its dovish protestations, continues to be met with strong economic data that will make the clamour for raising interest rates in 2014 ever harder to ignore. With GBP/USD jumping 150 pips in the last four sessions the bulls are strongly in control and will be looking for any weakness back towards the $1.7000/$1.7060 support band now as a chance to buy. Dollar/Yen has also benefited from a perceived improvement in risk appetite today brought about by the Chinese data. This is the one chief reason why the Dollar Index is not seeing a 5th consecutive day of selling pressure today. I seems as though 101.30 is still a key floor on Dollar/Yen.
Traders will be looking towards the ISM Manufacturing data out at 15:00BST. This data takes on added importance after the disappointment of Q1 GDP and the slight recent downward revision to expectations on Q2. The new half needs to start off on the right foot and the forward looking PMIs will give a good early indication of run rates for GDP. The forecast is for 55.8 and if the release is anything like the strong pending home sales, the market will take risk on board again this afternoon.
Already the European indices have reacted favourably today, whilst government bond yields at the longer end of the curve are being sold off to make room. However, these European equity markets have got some way to go to suggest the recent corrective configuration is over. DAX needs to climb above resistance around 9900, whilst the FTSE 100 is back to the resistance of the top pattern around 6782. If it falls over again round these levels then this would not be a positive near term signal.
Gold has been fairly muted after yesterday’s strong rally. So far the bulls have failed to back up the strong break and have much to do to convince that this move should be backed by the buyers.