The high-flying dollar-bloc currencies may be a preliminary sign market
change. The US dollar is gaining on the Canadian dollar for the fourth
consecutive session. It is probing resistance we identified in the
$1.2620 area. The US dollar has not traded above its 20-day moving
average since the Fed hiked rates on June 14. It is found today near
CAD1.2625.
A smaller than expected trade surplus (A$856mln, half of what was anticipated) provided the fodder to extend
the Australian dollar's fall to a third session. After spiking to
$0.8065 last week, it has drifted lower. A break of $0.7875 (and the 20-day moving average is found near $0.7865) would suggest the consolidation is folding
into an outright correction.
The focus today is on the Bank of England and its "Super Thursday" when the Quarterly Inflation Report
is also released along side the MPC minutes. A rate hike is highly
unlikely. The focus will be on the vote and if Haldane votes to hike as
he indicated he has considered. We suggest that if Haldane sticks
with the majority, the quid pro quo may a
more hawkish inflation report. This
could be expressed in part, for example, by lowering in the growth forecast and
lifting the inflation forecast. This
means that a reaction to a 6-2 vote (rather than 5-3 as was the case
previously) may be tempered by the
forward guidance and Carney's press conference.
Separately, the UK reported the service
and composite PMI. The former rose to 53.8 from 53.4, and this
fed into a rise in the later to 54.1 from 53.8. The composite average
54.7 in Q2 and 54.6 in Q1. This
would suggest the UK economy is seeing little improvement at the start of Q3.
Nevertheless, sterling is firm ahead of
the BOE meeting. It made a new high for the move, a little above
$1.3265. It is an 11-month high. Some unwinding long euro-short sterling positions may have lent sterling
support against the greenback.
The euro is trading in a less than a third of a cent range today around
where North American dealers left it yesterday. It has pulled back a
little more than three-quarters of a cent
after poking through $1.1900 briefly yesterday. Support is seen near $1.1780.
For all practical purposes, the euro has shrugged off a disappointing PMI
report. The composite for the region slipped to 55.7 from 56.3.
It is the lowest since January. It averaged 56.6 in Q2. German was
a downside surprise. With the service PMI falling more than the flash
reading had suggested, the composite was revised to 54.7 from 55.1 and 56.4 in
June. This is a 10-month low.
Although we find that international comparisons of headline PMI readings not
very helpful, it is interesting that for the first time in a dozen years,
Germany's composite is below the France, Italy,
and Spain. And Spain like Germany disappointed, with a larger than expected pullback from June.
The service PMI fell to 57.6 from 58.5,
and the composite eased to 56.7 from 57.1.
Italy offered a pleasant upside surprise. Its service PMI rose
to 56.3 from 53.6, and the composite rose
to 56.2 from 54.9. The French service PMI was a little better than the
flash at 56.0 (vs. 55.9), but still lower than the 56.9 reading in June.
The composite PMI fell to 55.6 from 56.6 in June.
The dollar is in about a quarter of a yen range against the Japanese
currency. While the dollar found a bid under JPY110 earlier this
week, it has found offers near JPY111.00. In Asia, the South Korean won
stands out. It slid 0.4% and is off for the third consecutive
session. Foreign investors were have
been selling Korean equities. They were net sellers every day this week
and have been sellers this week except for yesterday. Over the nine
sessions, foreign investors have sold an average of KRW234 mln a
day. The Kospi has held up this week, rising for the past three
sessions (~1.1%), but giving it all up with today's 1.7% slide. The
ostensible trigger was a report suggesting the government was considering
corporate tax increases and macro-prudential
measures to cool the property market.
Ahead of US jobs data tomorrow and after the first look at Q2 GDP,
today's US data may pose little more than headline risk. The July PMI
and ISM may be the most important, with the price and employment components the
most interesting. June factory orders are likely to have been bolstered
by Boeing orders from the Paris Air Show. Reports that the US
may launch another investigation into Chinese trade practices (intellectual
property) has had little immediate impact. The effort to cut legal
immigration by half may counter efforts to boost growth given the current
demographic situation. On the other hand, there have some reports suggesting
that an optimistic case of Congress is
passing next month some continuing resolution for spending in lieu of a new budget, and attaching a rise
in the debt ceiling to that. The White House seeks a $2.5 trillion
increase, while the conservative Freedom Caucus is more willing to concede $1.5
trillion.
Disclaimer
Dollar-Bloc Currencies Turning, but Euro Downticks Limited
Reviewed by Marc Chandler
on
August 03, 2017
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