The economic calendar is very busy today, after returning from a variety of holidays in Asia and Europe, markets are eager to get back to work. In Europe, investors look out for the final release of the April PMI.
The advance reading was quite disappointing and even a slight upward revision will not be able to remove investor uncertainty on Europe. The focus will be on the performance of the peripheral European countries.
The EMU unemployment rate is expected to rise from 10.8% to 10.9%. The market impact of the EMU data on EUR/USD trading will probably be limited. However, it is still difficult to expect them supporting EUR/USD.
After the close of the markets, investors will also keep an eye on the TV election debate between Sarkozy and Hollande. Uncertainty on economic a monetary policy in France after the elections remains a factor of uncertainty for the euro.
Also today, the UK calendar contains the construction PMI and the lending data. Expect these data to be only of intra-day importance. As indicated, markets are apparently very confident that the BoE will not raise the program of asset purchases at next week’s meeting.
A big negative surprise is needed to change market sentiment on the UK currency. At the same time, investors might turn a bit more cautious on the euro going into this weekend’s elections in Greece and in France.
In the US, the mortgage applications, the ADP report and the factory orders will be published. The ADP report has most market moving potential. Investors will look for the most recent developments in the labour market after last month’s disappointing US payrolls report.
The consensus expects the ADP to show a rise in private job growth of 179K. We don’t expect an upward surprise strong enough to change fortunes in favour of the dollar.
During the US trading session there were several Fed governors giving their view on the economy and on monetary policy, but both the hawks and the doves held to their well-known assessment. EUR/USD closed the session at 1.3237, little changed from the 1.3239 of the prior day’s close.
This morning, the USD/JPY cross rate is holding above the 80.00 barrier as the pair profits from a positive sentiment on risk on Asian markets. However, the key US eco data later this week will decide whether yesterday’s U-turn can be sustained. For now we stay side-lined and look out whether a bottom will be set. We will probably have to wait until the payrolls to get more clarity.
The EUR/GBP had already regained some ground off the 0.8123 low late in the session on Monday. This ‘correction’ continued on Tuesday. With most markets in continental Europe closed, the focus was on the UK eco data.
The manufacturing PMI declined from 51.9 to 50.5 (consensus 51.5). EUR/GBP reached an intra-day high just below the 0.8200 number upon the publication of the report. However, as was the case of late, sterling held up very well.
The UK currency almost immediately started a comeback and returned to the mid 0.81 area in US trading. So, for now the 0.8222 key resistance looks quite safe.