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US Session: Better US ISM Data Boosts Risk Appetite As Markets Shrug Off CIT News

Today’s data has been awash with PMI releases out of Europe, which were all broadly in line with forecasts (Eurozone, Germany), or better than expected (Sweden, Italy, France, UK). There was very little impact on FX markets after the releases, no doubt due to the more significant central bank meetings and data releases coming up in the remainder of the week. EURUSD drifted between 1.4730 and 1.4800 for most of the morning, and most other currencies traded sideways in tight ranges; the one exception to the range-bound majors being GBP which suffered heavy selling from models in GBPJPY, and continued real money sellers in GBPUSD took out stops through 1.6350 to touch a low of 1.6330.

The market-moving event of the day was the simultaneous release of the US ISM, Pending Home Sales and Construction Spending data – all of which beat expectations and improved on the month prior. ISM Manufacturing came out at 55.7 (53.0 exp, 52.6 last), and the Prices Paid component posted a 65.0 reading (64.0 exp, 63.5 last). The effect was immediate as the USD slipped rapidly against the majors and gold, whilst equity markets were boosted firmly into positive territory. EURUSD popped higher from 1.4770 to 1.4820 (and since to touch a high of 1.4845), and GBPUSD spiked from 1.6340 to 1.6415 before failing at resistance around 1.6440. Gold is now confidently above $1060, however the sustainability of the USD sell-off that has fuelled risk-assets higher will continue to hinge on the outcome of Wednesday’s crucial Fed meeting.

Until then, the main event in the day ahead will be the RBA rate meeting (the first of four major rate announcements this week); markets are anticipating another 25bps hike to 3.5%. Although an outside possibility, we feel it is unlikely they will hike by 50bps, but as always the accompanying statement will be a key driver of the projected path of rates in the coming year, and thus far officials have remained comfortable with the strength of AUDUSD.

Also due will be Norway Manufacturing PMI, UK Construction PMI, and US Factory Orders.

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