Cable printed a high of 1.6385 which was just higher than January highs of 1.6383. This was effectively its highest level since August 2011 and the price action continues to look bullish.
A better-than-expected China manufacturing PMI reading (51.4 versus 51.2) has already set the tone for risk this morning. While the PMI was ahead of consensus, this reading was flat from October. In the UK, data kicks off later today with manufacturing PMI expected to come in at 56.5. This would be a significant improvement on the previous reading of 56 and should be enough to keep the pound bid. Tomorrow we have construction PMI which will be the major release ahead of the BoE decision on Thursday. While no change is expected, any comments around the economic recovery and forward guidance will be a source of volatility for the pound.
Tapering expectations focus on jobs data
USD/JPY will also be interesting pair to watch from both sides of the equation. The pair continues to hold its ground above 102 and is clearly waiting for some direction at the moment. BoJ Governor Haruhiko Kuroda is becoming increasingly vocal and will be looking to reinforce the idea that the fiscal reform is needed to reassure investors.
On the US dollar side, arguably the most significant reading this month is set to be released in the form of the non-farm payrolls. Friday brings US non-farm payrolls which many feel will be the key reading to determine whether the Fed will taper. The market is looking for 184,000 jobs added and for the unemployment rate to fall to 7.2%. A lot of analysts feel we need to see a reading closer to 200k to really entertain any talk of tapering. Additionally, upward revisions for the past couple of months would really raise the 3-month average and would be bullish for the USD as well. Last week’s highs on USD/JPY at 10.2.61 will be the level to watch in the near term.