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Forex: Euro and Pound May Rise on PMIs, Dollar Eyeing Fed Beige Book

Forex: Euro and Pound May Rise on PMIs, Dollar Eyeing Fed Beige Book

2013-09-04 07:37:00
Ilya Spivak, Head Strategist, APAC
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Talking Points

  • Euro, British Pound May Rise on Last Round of August PMI Data
  • US Dollar Looks to Beige Book Survey for Fed QE “Taper” Clues
  • Aussie Dollar Outperforms as 2Q GDP Bolsters On-Hold RBA Bets

The revised Eurozone Composite PMI gauge is expected to confirm flash estimates putting manufacturing- and service-sector growth at the fastest in 26 months in August. Meanwhile, updated second-quarter Eurozone GDP numbers are due to underscore the region’s exit from recession in the three months through June with an output gain of 0.3 percent.The Euro continues to track the monetary policy outlook as implied by the spread in front-end bond yields. That means outcomes that top forecasts andlower the probability of further ECB easing are likely to buoy the single currency (and vice versa).

Separately, the UK Services PMI measure is expected to tick slightly lower to 59.7 in August after hitting 60.2 in the prior month to mark the highest reading in nearly 7 years. Sharp upside surprises on manufacturing and construction PMIs sent the British Pound sharply higher earlier this week however, leaving the door open for a similar result this time around. We continue to hold a short EURGBP position.

Later in the day, the spotlight shifts to the US data docket, where the Federal Reserve’s Beige Book survey of regional economic conditions is in focus. Markets will interpret the release in terms of its implications for continued speculation surrounding the central bank’s intent to begin “tapering” QE asset purchases. A soft tone is likely to be seen as limiting the scope for stimulus reduction beyond the widely expected September cutback and weigh on the US Dollaragainst most of its major counterparts. Signs of well-supported recovery stand to yield the opposite result.

The Australian Dollar continued to outperform for a second day overnight following the release of second-quarter GDP figures. Output expanded 0.6 percent from the prior quarter, a hair more than economists’ median forecast of a 0.5 percent gain. The first-quarter reading was revised slightly lower to 0.5 percent. On balance, this suggested that Australian economic performance fell broadly in line with consensus views in the first half of the year.

While this didn’t create the impetus for Aussie gains in and of itself, it removed an important bit of event risk holding back follow-through after yesterday’s RBA rate decision. The central bank’s rhetoric marked a notable shift away from an overtly dovish bias to a wait-and-see approach, sending the Australian unit higher as expected. We remain long AUDUSD.

The New Zealand Dollar advanced and the Japanese Yen declined as Asian stocks rallied for a fifth consecutive day. The former currency found support as the risk-on mood drove demand for higher-returning assets while the latter fell on a pickup in capital flows into carry trades funded in terms of the perennially low-yielding Japanese unit. The MSCI Asia Pacific regional benchmark equities index rose 0.3 percent.

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Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

22:45

NZD

Value of All Buildings s.a. (QoQ) (2Q)

-0.4%

-

5.4%

23:01

GBP

BRC Shop Price Index (YoY) (AUG)

-0.5%

-

-0.5%

23:30

AUD

AiG Performance of Service Index (AUG)

39.0

-

39.4

1:30

AUD

Gross Domestic Product (QoQ) (2Q)

0.6%

0.5%

0.5%

1:30

AUD

Gross Domestic Product (YoY) (2Q)

2.6%

2.4%

2.5%

1:45

CNY

HSBC/Markit Services PMI (AUG)

52.8

-

51.3

Euro Session:

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

7:45

EUR

Italian PMI Services (AUG)

49.9

48.7

Low

7:50

EUR

French PMI Services (AUG F)

47.7

47.7

Low

7:55

EUR

German PMI Services (AUG F)

52.4

52.4

Medium

8:00

EUR

Eurozone PMI Services (AUG F)

51.0

51.0

Medium

8:00

EUR

Eurozone PMI Composite (AUG F)

51.7

51.7

Medium

8:30

GBP

PMI Services (AUG)

59.7

60.2

High

8:30

GBP

Official Reserves (Changes) (AUG)

-

$1672M

Low

9:00

EUR

Eurozone GDP s.a. (YoY) (2Q P)

-0.7%

-0.7%

High

9:00

EUR

Eurozone GDP s.a. (QoQ) (2Q P)

0.3%

0.3%

High

9:00

EUR

Eurozone Household Consumption (QoQ) (2Q P)

0.1%

0.0%

Low

9:00

EUR

Eurozone Gross Fixed Capital (QoQ) (2Q P)

-0.2%

-1.9%

Low

9:00

EUR

Eurozone Gov’t Expenditure (QoQ) (2Q P)

0.3%

-0.2%

Low

9:00

EUR

Euro-Zone Retail Sales (MoM) (JUL)

0.2%

-0.5%

Medium

9:00

EUR

Euro-Zone Retail Sales (YoY) (JUL)

-0.3%

-0.9%

Medium

Critical Levels:

CCY

SUPP 3

SUPP 2

SUPP 1

Pivot Point

RES 1

RES 2

RES 3

EURUSD

1.3053

1.3111

1.3141

1.3169

1.3199

1.3227

1.3285

GBPUSD

1.5399

1.5480

1.5519

1.5561

1.5600

1.5642

1.5723

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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