Euro at Risk as PMIs Set Stage for ECB, Dollar Gains on Haven Flows

2012-10-03 07:05:00 Ilya Spivak, Head Strategist, APAC

The Euro looks vulnerable as PMI data highlights deepening recession in the Eurozone and fuels speculation about ECB stimulus ahead of this week’s policy meeting.

Talking Points

Euro May Face Selling Pressure as PMIs Highlight Urgency of ECB Stimulus
US Dollar Higher as Chinese, Australian Economic Data Disappoints Overnight

The revised set of September’s Eurozone PMI figures is in focus in European hours. Expectations call for confirmation of initial estimates showing manufacturing- and service-sector activity shrank at the fastest pace since June 2009. As we discussed in our weekly Euro forecast, signs of deepening recession against a backdrop of aggressive fiscal consolidation in Spain and France unveiled last week may amplify hopes for ECB easing, weighing on the single currency. While priced-in expectations suggest Mario Draghi and company will remain on hold this week – an outcome made all the more likely by the run-up in the latest set of inflation readings – traders will be keeping a close eye on any guidance about forthcoming efforts to bolster growth in the region.

The US Dollar advanced against its top counterparts overnight as Asian stocks declined, driving demand for the go-to haven currency. The MSCI Asia Pacific regional benchmark stock index fell 0.4 percent on the back of a disappointing data set. China’s Non-manufacturing PMI print showed service-sector activity grew at the slowest pace in at least 19 months. Meanwhile, Australia’s Trade Balance report revealed the largest deficit since March 2008 as exports tumbled 12.3 percent from a year before. That marks the largest slump in overseas sales since March 2010. The New Zealand Dollar bore the brunt of the selloff, down 0.6 percent against the majors.

Asia Session: What Happened

GMT	CCY	EVENT	ACT	EXP	PREV
23:01	GBP	BRC Shop Price Index (YoY) (SEP)	1.0%	-	1.1%
23:30	AUD	AiG Performance of Service Index (SEP)	41.9	-	42.4
1:00	CNY	Non-manufacturing PMI (SEP)	53.7	-	56.3
1:00	AUD	HIA New Home Sales (MoM) (AUG)	-5.3%	-	-5.6%
1:30	AUD	Trade Balance (A$) (AUG)	-2027M	-685M	-1530M (R-)

Euro Session: What to Expect

GMT	CCY	EVENT	EXP	PREV	IMPACT
7:45	EUR	Italian PMI Services (SEP)	44	44	Low
7:50	EUR	French PMI Services (SEP F)	46.1	46.1	Low
7:55	EUR	German PMI Services (SEP F)	50.6	50.6	Medium
8:00	EUR	Euro-Zone PMI Composite (SEP F)	45.9	45.9	Medium
8:00	EUR	Euro-Zone PMI Services (SEP F)	46	46	Medium
8:30	GBP	PMI Services (SEP)	53	53.7	Medium
8:30	GBP	Official Reserves (Changes) (SEP)	-	$732M	Low
9:00	EUR	Euro-Zone Retail Sales (MoM) (AUG)	-0.1%	-0.2%	Low
9:00	EUR	Euro-Zone Retail Sales (YoY) (AUG)	-1.9%	-1.8%	Low