The Dollar Rally Pauses ahead of Private Sector PMI and Nonfarm Numbers , with the EUR, GBP and USD in Focus

Earlier in the Day:

There were no material stats out through the Asian session this morning to rock the boat, with China on holiday through the week having a positive effect on the markets, following last weekend’s upbeat private PMI figures.

In the equity markets it was a day of stark contrasts with the Hang Seng Index rally pushing the index close to a 10-year high, while the ASX200 saw this year’s gains wiped out despite the risk on mood that has seen other majors continue to hit records.

Perhaps the RBA statement on Tuesday added to the selling pressure, with the statement giving little away on a possible shift in monetary policy, weighing on the Aussie bank stocks to which the ASX200 is heavily weighted.

The AUD has managed to bounce back from the decline through yesterday’s Asian session, with the markets hitting the pause button on the U.S Dollar rally ahead of this week’s wage growth and nonfarm payroll numbers.

At the time of the report, the AUD was up 0.37% at $0.7865 and the markets will be all too aware of the RBA’s concerns over AUD strength and the anticipated negative effects on the economy and inflation that could lead the RBA to hold on any shift in policy over the near-term. Tomorrow’s August retail sales and trade data will certainly be of interest, with trade terms having been less favourable through August, as the AUD flirted with $0.80 levels through the month.

Joining the Hang Seng in positive territory was the Nikkei, which fed off the overnight gains in the U.S, the Nikkei managing to brush off a pickup in the Yen overnight that extended through the Asian session.

At the time of writing, the Yen was up 0.27% at ¥112.55 against the Dollar, though with key stats scheduled for release out of the U.S this afternoon, the gains could easily be reversed.

The Day Ahead:

Following a relatively quiet day on Tuesday, stats are on the heavier side through the day.

Macroeconomic data out of the Eurozone this morning includes finalized September service sector PMI and August retail sales figures. The prelim private sector PMI numbers were certainly impressive and should the finalized numbers be in line, there’s certainly justification for the EUR to begin to break free from the geo-political shackles that has weighed on the EUR since Merkel’s poor showing in the German General Election.

Based on forecasts, the numbers are positive for the EUR, though following some disappointing retail sales figures out of France and Germany, retail sales forecasts may fail to impress.

While the stats will be the key driver through the morning, noise from Germany and Spain will need to be considered, as the Catalan President looks to create an independent Republic and Chancellor Merkel looks to get discussions going amongst the likely coalition partners, with Draghi also speaking late in the day.

The EUR may have found a new lease of life, but for the Pound it’s been an altogether different story, with September’s manufacturing and construction PMI figures having fallen short of expectations, leaving the markets to consider the possibility that the UK economy has finally caved into the pressures of Brexit.

With September’s service sector PMI scheduled for release shortly, it could be a woeful hat trick for UK economy and the Pound and, when considering the fact that the BoE will consider lifting rates in the coming months should the economic data support such a move. Weak PMI numbers would certainly raise doubts over whether the BoE will actually make a move to ease inflationary pressures, with a softening in the Pound not helping the BoE to peg back inflation.

On the political front, Boris Johnson’s backing of the British Prime Minister will have eased some nerves ahead of May’s closing speech today, who continues to attempt to rally the troops in the aftermath of the summer election. Any signs of unity within the Tory party will be a positive for the Pound, though we can expect today’s service sector figures to be of particular influence through the day.

Across the Pond, the markets will be looking out for September’s ADP nonfarm employment change figures, which are forecasted to be somewhat disappointing, with September’s service sector PMI numbers also scheduled for release.

While the markets will generally take the ADP numbers as a guide on what to expect from this Friday’s government numbers, Hurricanes Harvey and Irma will have influenced hiring through September and we would expect the Dollar to be less sensitive to softer numbers, though there would be an expectation that forecasted figures would be at least reached.

Adding to direction for the Dollar through the day, will be September’s service sector PMI, with the market’s preferred ISM survey figures of greater interest than the finalized Markit survey numbers.

Following the manufacturing PMI figures released earlier on the week, we could see the Dollar recover from early losses, with the markets needing to consider Yellen’s call for a more aggressive rate path.

At the time of writing, the Dollar Spot Index was down 0.16% at 93.416, direction hinged on today’s stats, with the EUR up 0.21% at $1.1769 and the Pound up 0.27% at $1.3273.