It’s been a relatively quiet morning of FX trade with most of the majors contained to ranges of 50 pips or less, with USD/JPY plowing through the 103.00 level while cable hit fresh multi decade lows under 1.2700 before finding some bargain hunting bids.
UK data continued to surprise to the upside hitting a hat trick with PMIs as the Services PMI printed at 52.6 vs. 52.0. New orders rose to 53.7 from 52.7 but sentiment remained subdued although it was at its highest level in 3 months. While UK economy is clearly enjoying a boost from markedly lower exchange rates, business expectations are unnaturally low given the pace of growth as Brexit fears permeate the sector.
Cable made a feeble attempt at recovery popping to 1.2740 but was quickly repelled from those levels as sellers continued to dominate. The pair is now grossly oversold in the short term, but with sentiment so bleak against the currency, it may not muster much of rebound, especially if US data surprises to the upside.
The dollar remained well bid throughout the night with USD/JPY plowing through the 103.00 level in morning London dealing. Although the NFPs will be the marquee event this week, the market is already starting to anticipate positive US labor data with all eyes focused on the ADP report due 12:15 GMT today and the ISM Non Manufacturing due at 14:00 GMT. The employment component of the ISM report is generally a very good predictor of the NFP number due Friday and if both reports come within forecast the greenback rally could extend to 103.50 as the day proceeds.
At Ms. Yellen’s press conference last month she made clear that continued growth in employment will convince the Fed to begin normalization of rates in December and as markets anticipate those actions US yields will rise providing long term support for the dollar. Therefore today’s data could be the springboard for much larger trend move in the greenback over the next several months