Asian equities have gained for a third straight day as worries over Dubai’s debt crisis have dissipated and the global recovery remains on track. The corresponding USD weakness has led EURUSD to retest 1.5100 levels, and most notably, pushed gold emphatically through the $1200 psychological barrier to touch highs of $1215.75. Yesterday’s European PMI data was broadly better than expected, whilst the US ISM Manufacturing disappointed; however the most significant drivers for FX markets were policy-maker comments from both sides of the Atlantic. EU President Juncker reassured markets that the likely knock-on effect of Dubai’s debt problems on the Eurozone were minimal, whilst the Fed’s Plosser remarked that the USD’s recent depreciation was not a concern; explaining that it was in part a reversal of the USD inflows seen during the financial crisis. Both sets of data and rhetoric reaffirm in our minds the case for further EURUSD appreciation in the weeks to come, and it seems highly plausible that we see 1.5200 by year end.
Meanwhile the speculation about JPY intervention seems to have cooled marginally from this time yesterday after USDJPY’s reversion back above 87.00. Markets are still absorbing the implications of the new liquidity facility, but we remain vigilant for any new headlines concerning the currency specifically to take our cue on JPY direction from here.
Looking ahead to today, the morning highlights include Norwegian PMI, UK PMI Construction and Eurozone PPI. Of the three, the most likely to have any impact on the FX markets is likely to be UK PMI; as GBP has been under pressure recently amid speculation that UK banks may be heavy exposed to Dubai debt. The large miss in UK PMI Manufacturing yesterday did little to improve the prospects for GBP, and another miss today could be severely negative on GBP sentiment. The afternoon’s schedule is light, but we look to the ADP Employment Report out of the US to provide an early insight into the more significant Non Farm Payroll numbers on Friday.
G10 Advancers and Decliners vs USD