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US Dollar to Fall While Yen Gains if ISM Data Falls Short of Forecasts

US Dollar to Fall While Yen Gains if ISM Data Falls Short of Forecasts

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Swiss Franc Drops on Rumors of SNB Targeting 1.05-1.10 EURCHF Band
  • Aussie Dollar Gains on Signs of Ebbing Rate Cut Bets Before RBA Meeting
  • Soft ISM Manufacturing Data Hurt US Dollar Lower, Boost Japanese Yen

The Swiss Franc underperformed in overnight trade, falling as much as 0.8 percent on average against its top counterparts. The move followed reports in Schweiz am Sonntag citing unidentified officials at the SNB as saying the central bank is working to keep EURCHF in a 1.05-1.10 corridor. The nameless interviewee said the policy may come at a cost of as much as CHF10 billion for the monetary authority.

The Australian Dollar traded higher, adding as much as 0.4 percent against the majors. The move tracked an advance in front-end bond yields, pointing to ebbing RBA interest rate hike bets ahead of this week’s monetary policy announcement as the catalyst behind the rebound. With that said, priced-in expectations continue to see a better-than-even chance of easing, reflecting a 62 percent probability of a 25bps reduction in the baseline lending rate. We suspect dovish bets may be disappointed however.

A relatively quiet economic calendar in European trading hours is likely to see investors looking ahead to the US docket, where January’s ISM Manufacturing gauge will be in focus. Expectations point to a print at 54.5, marking the third consecutive slowdown in factory-sector activity and the weakest growth rate in 10 months.

US economic news-flow has increasingly disappointed relative to consensus forecasts over recent weeks, opening the door for a downside surprise. Such an outcome may weigh on the US Dollar as traders push back Fed rate hike expectations. It may likewise drive risk aversion amid worries the about the inability of US growth to offset malaise in Europe and Asia, triggering an unwinding of carry trades and boosting the Japanese Yen.

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Asia Session

GMTCCYEVENTACTEXPPREV
01:00CNYManufacturing PMI (JAN)49.850.250.1
01:00CNYNon-Manufacturing PMI (JAN)49.0-46.9
22:30AUDAiG Perf of Mfg Index (JAN)49.0-46.9
23:00AUDCoreLogic RP Data House Px (MoM) (JAN)1.3%-0.9%
23:30AUDTD Securities Inflation (YoY) (JAN)1.5%-1.5%
23:30AUDTD Securities Inflation (MoM) (JAN)0.1%-0.0%
01:35JPYMarkit/JMMA Japan Mfg PMI (JAN F)52.2-52.1
01:45CNYHSBC China Mfg PMI (JAN F)49.749.849.8
05:00JPYJapan Vehicle Sales (YoY) (JAN)---8.8%
05:30AUDCommodity Index AUD (JAN)87.3-88.3
05:30AUDCommodity Index (YoY) (JAN)-20.4%--20.6%

European Session

GMTCCYEVENTEXP/ACTPREVIMPACT
8:00CHFSNB Sight Deposits --Low
8:30CHFProcure.ch Mfg PMI (JAN)50.654.0Medium
8:45EURMarkit/ADACI Italy Mfg PMI (JAN)48.848.4Low
8:50EURMarkit France Mfg PMI (JAN F)49.549.5Low
8:55EURMarkit/BME Germany Mfg PMI (JAN F)51.051.0Low
9:00EURMarkit Eurozone Mfg PMI (JAN F)51.051.0Low
9:30GBPMarkit UK Mfg PMI (JAN)52.752.5Medium

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3
EURUSD1.11411.12261.12581.13111.13431.13961.1481
GBPUSD1.48341.49411.50011.50481.51081.51551.5262

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

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