March 1, 2010 05:50 PM

Risk was decidedly on in the NY session but the US dollar managed to bank most of its intraday gains. US equities gained more than 1% in broad terms as the ISM manufacturing index showed strong details. While the headline missed expectations (printing 56.5 vs. expected 58.0) the guts of the report were quite constructive for economic growth. New orders and production did slip a touch, but nonetheless printed very robust 59.5 and 58.4, respectively. The big positive piece of news was the increase in the employment component to 56.1 from 53.3 and the highest since January 2005 when nonfarm payrolls saw an add of 136,000.

If nothing else, the report does suggest that the US remains on better footing than many other G-10 countries (especially compared to the debt burdened Eurozone and UK!). Cable (GBP/USD) made an earnest attempt to re-capture the 1.50 handle but has thus far failed miserably above, while EUR/USD continues to find a good amount of offers (sellers) ahead of the 1.3600 mark. In the short/medium term, we remain sellers of both pairs on rallies.

All eyes now shift to Australia overnight as retail sales and the RBA rate decision are on deck. The market is pricing in about a 60% probability of a 25 basis point rate hike to 4% while about five out of 20 economists expect no change. Retail sales, meanwhile, are forecast to come in at a robust 0.5% monthly gain in January after a disappointing -0.7% drop the prior month. The risk is that we get both a rate hike from the RBA and better than expected retail sales. In terms of the technicals, the top of the hourly Bollinger band now by 0.9020/30 is capping the short-term gains. Break above should open up potential towards 0.9070 and 0.9130 next.