Solid US data lifts greenback

The main theme in the FX space was renewed US dollar strength as QE tapering talk ramped up.

The US services PMI index rose to 58.6; its highest read since August 2005 and well ahead of expectations of 55 as US economic momentum shifts into fourth gear. To put the US figure in perspective, Australia’s services PMI read was 39; its lowest print since April 2009, and is still contracting. Just like manufacturing, Australia’s economy seems to be spluttering as the rest of developed world drives off into the sunset.

The US services print was coupled with positive reads from the ADP non-farm payroll, with 176,000 positions added versus an estimated 175,000, however was softer than last month’s read. Unemployment claims fell to 323,000 over the week versus an estimated 332,000.

With positive news on the USD side, USD/JPY finally nudged through the 100 level overnight as the USD gained further ground on the back of some positive economic data. The yen will remain in focus ahead of the G20 summit this weekend where Finance Minister Aso is expected to announce a two-staged sales tax hike. This threatens to take some steam out of the recovery and might force the BoJ’s hand to act. The next level of resistance for USD/JPY is around 101.38. Near term support for USD/JPY will be in the 99.50 region where it consolidated for a while.

EUR/USD came under significant pressure overnight after ECB President said the central bank considered cutting rates. It also made it clear that the ECB remains cautious about the recovery, and this was reflected in the ECB staff's broadly unchanged growth and inflation forecasts. EUR/USD dropped to a low of 1.311 and remains sidelined around that level. Most of the volatility for the pair is likely to come from the USD side of the equation. Any further greenback gains could see the pair head down towards 1.30 in the short term.

AUD/USD's recovery finally stalled, but the repair remains steady at around 0.914. With non-farm payrolls data due out later today we are bound to see further tapering repricing. The market is looking for a non-farm employment change of 178,000, with an unemployment rate of 7.4%. Some analysts have grown increasingly optimistic on the print and are looking for a reading around the 200,000 mark.

 

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