Asian Equities gain with Private Sector PMIs to Drive the EUR and USD, without forgetting Trump, Taxes and FED Chair Selection

Earlier in the Day:

It was another quiet day on the stats front through the Asian session this morning, with the markets taking little direction from the U.S session, as Asian equities brushed off Monday’s fall in the U.S majors, with the Nikkei continuing to climb following Prime Minister Abe’s landslide General Election victory over the weekend.

U.S Dollar softened through the Asian session this morning to give the majors a rest from the recent revival in the Dollar, with the Aussie Dollar up 0.12% at $0.7816 and the Yen up 0.05% at ¥113.37 against the Dollar.

With the BoJ likely to now continue to maintain its accommodative monetary policy position and Trump preparing to roll out tax reforms, any concerns over Yen strength will have been alleviated for now, which will continue to provide support for the Japanese economy.

For the Aussie Dollar, direction will hinge on tomorrow’s 3^rd quarter inflation, with weak numbers likely pull the Aussie Dollar back to sub-$0.78 levels as the RBA looks to remain in a holding pattern on monetary policy over concerns of the effects of a rate hike on household disposable incomes and the Australian economy.

Following last week’s NZ First decision to go with Labour, the Kiwi Dollar’s tumble continued this morning, bucking the trend, down 0.53% at $0.6930 in what could become a 4% slump for the Kiwi by the end of the month, particularly should economic data continue to disappoint.

With the exception of the Kiwi Dollar, which has a political shift to the left to navigate through, direction will also come from whether Trump continues to convince the markets that tax reforms will successfully pass through the house and on who the U.S president will select for Yellen’s replacement.

The Day Ahead:

Following a quiet day on the stats front on Monday, the markets will have some data to consider through the early part of the European session, with October prelim private sector PMI figures scheduled for release this morning.

Out of the Eurozone, Germany, France and the Eurozone’s figures will provide direction for the EUR and based on forecasts, the numbers are expected to be EUR positive, a slight softening from September’s high levels likely to be accepted by the markets ahead of Thursday’s ECB press conference and monetary policy decision, where Draghi is expected to unveil the plans for next year’s asset purchasing program.

There’s been plenty of debate over the size of the tapering and for how much longer the ECB will continue to purchase, with the more dovish pointing towards a 50% cut in the size, while extending through to the end of next year. One thing is certain and that is the fact that the ECB will be looking to avoid a taper tantrum, with anything on the bullish side likely to drive the EUR to $1.20 levels and beyond.

With Catalonian independence noise continuing to hit the wires, the Catalonian government having stated that it would not take orders from Madrid, how other member states respond to any escalation in Spain will be a factor to consider for the EUR, especially if we begin to see rallies in major cities across the region. For now the issue is considered to be contained to Spain however, barring the likely negative impact from a growth perspective.

At the time of writing, the EUR was up just 0.10% at $1.1761, with today’s data and sentiment towards Thursday’s ECB press conference the key drivers through the day.

With no material stats out of the UK for the markets to consider, the Pound will likely hold on to gains through the day in response to the positive news from the EU Brexit Summit last week and on hopes that the UK government will make progress on trade talks with time running out. One major issue for the Pound could be a loss of confidence in Prime Minister Theresa May, which would open the door to a Labour government with James Corbyn at the helm, a prospect that would be particularly negative, though May’s future will ultimately depend on what amount Britain will pay to leave the EU and on trade agreements are made.

The Pound was up 0.16% at $1.3219 at the time of the report, with any downward moves likely to stem from Dollar strength through the day.

Across the Pond, macroeconomic data out of the U.S includes October’s prelim manufacturing and service sector PMI figures. Following last week’s New York and Philly manufacturing numbers, we would expect the U.S manufacturing PMI to be positive, though of greater influence will be service sector activity that has a far greater contribution to the U.S economy. Forecasts point to slightly slower service sector activity, though with the talk of tax reforms and the FED Chair rate, the numbers will need to be quite dire for the Dollar to go into a tail spin.

Trump has said that he is close to deciding on who will take the top spot at the FED and the markets will certainly be looking out for any announcements and a surprise decision that could give the Dollar a bounce, that being the selection of a more hawkish FED Chair with John Taylor and Kevin Warsh having been in consideration.

At the time of writing, the Dollar Spot Index was 0.14% at 93.804 with direction hinged on today’s stats and any noise from the Oval Office.