Yen Pares Gains

Daily Analysis - 06/10/2015

Japanese Yen Eases Lower As Risk Sentiment Rebounds on Back of Commodity Currencies


The US dollar traded mixed yesterday as the Kiwi and Aussie dollars rallied higher while safe haven assets like the Yen and Swiss Franc took a backseat. Equity markets managed to turn green across the board yesterday as attention turns towards tomorrow’s Bank of Japan monetary policy meeting.

UK Services PMI Falls

The headline PMI in the services sector for the UK fell by 2.7 points to print an index reading of 53.3 missing estimates of 56.0 and down from the previous month's reading of 55.6. The combined PMI data from manufacturing, construction and services experienced a quarterly decline to 52.7 from the previous quarter’s 55.4 average. The services sector in particular which had hitherto been a strong leader in the PMI's showed signs of decelerating which is likely to be considered in future Bank of England meetings on the timing of rate hikes and also a key factor in MPC members voting in favor of rate hikes. With the next policy meeting set for Thursday, the British Pound has thusfar failed to capitalize on a weaker Greenback after posting a 4-day high near 1.5239, declining back towards lows of 1.5139.


US Services Sector Weakens

Similar to other advanced economies, the US services PMI was softer, printing at 55.1 below estimates of 55.7 and down from the previous month's reading of 55.6. The ISM non-manufacturing PMI was also weaker at 56.9, below estimates of 58.0 and down from 59.0 last month. The services sector component of the ISM non-manufacturing report showed a surprise pickup in the employment index which rose to 58.3 from 56.0 previously, in sharp contrast to the declines posted in September based on the BLS's nonfarm payroll report last week. EURUSD failed to hold onto its gains as the Euro declined from intraday highs of 1.1280 to close at 1.1177. Price action remains range bound within Friday’s highs and lows of 1.1318 and 1.1150 respectively. ECB President Mario Draghi is scheduled to speak later in the session but it is unlikely that his speech would focus soley on monetary policy.


RBA Leaves Rate Unchanged

The Reserve Bank of Australia left the key rate unchanged at its meeting today, leaving the benchmark cash rate at 2.00%. Ahead of the RBA's monetary policy meeting, the trade balance data showed a trade deficit of $3.095 billion AUD in August, falling nearly 11% from July, printing well below expectations as well. The Australian dollar largely ignored the trade balance data with the currency gaining on the back of the RBA's inaction to trend near weekly highs of 0.7130. Despite holding off on slashing rates futher at this meeting, many economists expect to see the RBA deliver another rate cut by end of 2015 by as early as the November meeting. The Australian dollar remains strong on the daily charts after the currency hit a low of 0.6900 in early September, managing to post a 4-day rally after forming a doji candle near the lows of 0.6956.


Ivey PMI Ahead

The Canadian Ivey PMI data is due out later today during the North American trading session. Expectations call for the Ivey PMI to have decelerated to expansion of 54.1 from 58.0 in the reading last month. The Canadian Dollar has turned stronger in recent weeks led in part by higher crude oil prices and the rebound in commodity prices, seeing the USDCAD pair post 4-straight sessions of declines. Previously, the Greenback touched a multi year high against the Canadian dollar of 1.3416 before falling back to current levels, trending near 1.3060 at the time of writing. Support is seen at the 1.3000 psychological level followed by 1.2938. With the weekly chart showing a bearish engulfing candlestick near the top of the uptrend last week, USDCAD is likely to remain pressured to the downside for the near-term until the US dollar rebounds.


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