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US Dollar Drops, Euro and Yen Press Higher Amid Market Turmoil

US Dollar Drops, Euro and Yen Press Higher Amid Market Turmoil

Ilya Spivak, Head Strategist, APAC

Talking Points:

The US Dollar underperformed in overnight trade, falling as much as the 0.3 percent on average against its top counterparts. The move tracked a slide in front-end Treasury bond yields, pointing to eroding Fed rate hike expectations as the likely catalyst. For its part, the move in rates seemed to reflect safe-haven demand for US debt amid continued risk aversion, but may have likewise reflected perceptions of falling probability for tightening at this month’s FOMC meeting given a backdrop of market angst. The MSCI Asia Pacific regional stock index fell 1.6 percent, extending the turmoil started at the weekly trading open.

The Euro and the Japanese Yen continued to outperform as the slump in sentiment continued to fuel the unwinding of carry trades funded in the two low-yielding currencies. The Canadian Dollar corrected lower having soared alongside crude oil prices in the preceding session. That move followed the release of the OPEC monthly bulletin, where the cartel said it was willing to work with other global suppliers on a “fair” oil price. The markets appeared to interpret the statement as hinting that OPEC was willing to reduce crude output, though no specifics actually emerged.

Looking ahead, the spotlight turns to Augusts’ UK Manufacturing PMI figures. The pace of factory-sector activity growth is expected to accelerate for a second consecutive month, hitting the strongest level since March. UK economic news-flow has increasingly outperformed relative to consensus forecasts over the past month, opening the door for an upside surprise. Such an outcome may rekindle BOE interest rate hike speculation, particularly after seemingly hawkish comments from Mark Carney over the weekend, and boost the British Pound.

On the sentiment front, S&P 500 index futures are trading down nearly 2 percent in late Asian market hours, hinting that the risk-off mood is likely to carry forward as European and North American bourses come online. Investors will look to the US ISM Manufacturing report to continue the evolution of Fed policy expectations. Economists envision a slight down-tick but a recent string of data outcomes beating forecasts may pave the way for an unexpectedly firm print that inspires fears of on-coming tightening, compounding the markets’ dour mood.

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Asia Session

GMTCCYEVENTACTEXPPREV
22:45NZDTerms of Trade Index (QoQ) (2Q)1.3%-2.5%1.2%
23:30AUDWeekly Consumer Confidence Index113.3-113
23:30AUDAiG Perf of Mfg Index (AUG)51.7-50.4
23:50JPYCapital Spending (YoY) (2Q)5.6%8.8%7.3%
23:50JPYCapital Spending Ex Software (2Q)6.6%10.9%8.1%
23:50JPYCompany Profits (2Q)23.8%2.2%0.4%
23:50JPYCompany Sales (2Q)1.1%--0.5%
00:00AUDCoreLogic RP Data House Px (MoM) (AUG)0.3%-2.8%
00:00NZDQV House Prices (YoY) (AUG)11.3%-10.1%
01:00CNYManufacturing PMI (AUG)49.749.750
01:00CNYNon-manufacturing PMI (AUG)53.4-53.9
01:30AUDBoP Current Account Balance (2Q)-19.0B-15.9B-13.5B
01:30AUDNet Exports of GDP (2Q)-0.6-0.30.5
01:30AUDBuilding Approvals (MoM) (JUL)4.2%3.0%-5.2%
01:30AUDBuilding Approvals (YoY) (JUL)13.4%10.1%13.5%
01:35JPYNikkei Japan PMI Mfg (AUG F)51.7-51.9
01:45CNYCaixin China PMI Mfg (AUG F)47.347.147.1
01:45CNYCaixin China PMI Composite (AUG)48.8-50.2
01:45CNYCaixin China PMI Services (AUG)51.5-53.8
04:30AUDRBA Cash Rate Target2.00%2.00%2.00%
05:00JPYVehicle Sales (YoY) (AUG)2.3%--1.3%
06:30AUDCommodity Index AUD (AUG)79.7-80.6
06:30AUDCommodity Index (YoY) (AUG)-20.9%--19.1%

European Session

GMTCCYEVENTEXPPREVIMPACT
07:30CHFPMI Mfg (AUG)49.848.7Medium
07:45EURMarkit/ADACI Italy Mfg PMI (AUG)55.055.3Low
07:50EURMarkit France Mfg PMI (AUG F)48.648.6Low
07:55EURGerman Unemployment Change (AUG)-4K9KMedium
07:55EURGerman Unemployment Claims Rate (AUG)6.4%6.4%Medium
07:55EURMarkit/BME Germany Mfg PMI (AUG F)53.253.2Medium
08:00EURMarkit Eurozone Mfg PMI (AUG F)52.452.4Medium
08:00EURItalian Unemployment Rate (JUL P)12.7%12.7%Low
08:00EURItalian Unemployment Rate Quarterly (2Q)12.5%12.4%Low
08:30GBPNet Consumer Credit (JUL)1.2B1.2BLow
08:30GBPNet Lending Sec. on Dwellings (JUL)2.7B2.6BLow
08:30GBPMortgage Approvals (JUL)68.1K66.6KMedium
08:30GBPM4 Money Supply (MoM) (JUL)--0.5%Low
08:30GBPM4 Money Supply (YoY) (JUL)--0.3%Low
08:30GBPM4 Ex IOFCs 3M Annualised (JUL)-3.8%Low
08:30GBPMarkit UK PMI Mfg (AUG)52.051.9High
09:00EUREurozone Unemployment Rate (JUL)11.1%11.1%Medium
09:00EURItalian GDP (QoQ) (2Q F)0.2%0.2%Medium
09:00EURItalian GDP (YoY) (2Q F)0.5%0.5%Medium

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3
EURUSD1.10091.11101.11611.12111.12621.13121.1413
GBPUSD1.51781.52761.53101.53741.54081.54721.557

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

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