Daily FX market outlook

Daily FX market outlook

US dollar builds on gains following strong services ISM.

The US dollar continued to be strong in today’s Asian session – keeping and in some cases extending the previous day’s gains on a big reversal by the ISM Services survey.  The dollar appeared to be strong against all other majors – the euro, the yen, the pound and the Australian dollar.

Regarding the ISM report, whereas August’s (previous month) number shocked by coming in at 51.4 from July’s 55.5, in September the index rebounded to 57.1, far exceeding expectations of a more modest increase around 53.  The euro was pushed below the 1.12 mark to 1.1190, whereas dollar / yen extended its recent rally to 103.60.  Risk sentiment was also positive, while bond yields rose.

The markets were eagerly waiting for the September employment report tomorrow, which could reinforce the case for a US rate hike.  Of course the fact that current data is arguing for a rate hike does not mean they will also argue for one in December which is seen by many as the earliest opportunity where there could be such a hike.  Chicago Fed President Charles Evans said that a December hike would be “fine” – provided the data remains strong.

Sterling was struggling to remain above its latest low versus the dollar, as a strong greenback also made it difficult for the UK currency to hold its ground.  Pound / dollar was trading at 1.2705 – above yesterday’s low of 1.2684- whereas euro / pound was clinging to the 88 pence level at 0.8807.

In terms of economic data, Australian trade deficit was lower-than-expected for August, while German industrial orders rose 1% instead of the expected 0.2% increase during the same month.

Oil (US futures contract) made an attempt to break through the $50 a barrel level the previous day but failed.  It nevertheless traded close to the psychologically important 50 level at $49.60.  Crude oil inventory data in the US showed a surprise draw (instead of a build) during the previous week, which helped support the price.  Nevertheless, some analysts say that the planned OPEC action to only slightly reduce outlook is unlikely to change the supply-demand balance in the global oil market, which could hinder further gains by the commodity.  Elsewhere in the commodity space, gold continued its fall to a 3 ½ month low but managed to hold the $1260 an ounce level for now by trading at $1265.

The remainder of the day is looking relatively quiet, with only weekly jobless claims out of the US likely to capture significant attention.