Technically, the FX market is looking stretched and the USD is quite oversold, so a healthy corrective pullback should not be discounted.
The latest weakness in the Greenback has come from a pickup in talk of additional accommodative monetary policy measures from the Fed which would significantly undermine the value of the currency. Also seen weighing has been a raft of weak data out of the US highlighted by the most recent softness in personal income, personal consumption, pending home sales and factoryorders. The resulting price action has seen the USD post new lows versus the Euro, Sterling, Yen and other major currencies.
On the data front, UK BRC shop price index remained unchanged and the Australian AiG performance of service index came in a tad softer. Otherwise data was very upbeat out of Australia with the house price index and trade balance both soundly beating expectations.
US equities failed to generate additional momentum from the strong Monday performance, and although the declines were only marginal, this could now lead to a bout of profit taking in a market that has been quite volatile, while also failing to manage any form of sustainable gains. Looking ahead, German PMI (57.3 expected) is due at 7:55GMT followed by Eurozone PMI (56.7 expected) at 8:00GMT. UK official reserves and services PMI (54.5 expected) are then due out at 8:30GMT, with Eurozone retailsales (0.1% expected) capping things off at 9:00GMT.
Written by Joel Kruger and Jonathan Granby
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