Greenback strength dominates FX space

The final manufacturing PMI print was mildly ahead of consensus while the ISM manufacturing PMI was relatively in-line with consensus.

There was a bit of drama with the ISM print after a couple of incorrect releases. Regardless, the US dollar index managed to trade back above 80 where it remains in Asian trade. The anticipation of positive releases from the US this week is incredible and it will be a spectacular fall from grace if any of this data disappoints.

The ADP non-farm payrolls reading on Wednesday will kick off proceedings and set up sentiment heading into Friday’s official reading. While US sentiment is the main driver, the DXY is also benefitting from euro and yen weakness. The single currency is facing selling pressure as traders anticipate stimulus from the ECB. Euro losses extended on the back of a disappointing German CPI reading which once again exposes the challenges the region is facing.

Further yen weakness on the cards

USD/JPY is an interesting one to watch at the moment as the pair continues to drift higher and establishes a steady near-term uptrend. There was a downtrend resistance line capping gains which had been in place since April. This downtrend was finally broken yesterday after a solid move higher for USD/JPY. Talk around the government pension fund and the potential to pull around $200 billion out of JGBs and into foreign assets has been a big driver of yen weakness. There has also been plenty of speculation around other measures that Japan could take with officials floating the idea of a corporate tax cut.

With officials still chasing to make Japan more competitive, there is a real chance we could see further measures that will weaken the yen in the near term. Following the break through the downtrend resistance, the pair could test 103 in the near term.

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