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At 10:00:00 AM US July ISM non-manufacturing (exp 55.0, prev 57.2)
London traders took profit from the dollar's rally in Asian trade, pushing EUR/USD near its opening level of 98.72 and USD/JPY below 119.00 again. European bourses were hit hard this morning as they followed Friday's losses on Wall Street and today's US equity futures lower. Slower than expected Q2 GDP as well as major setbacks in manufacturing and employment data hurt stocks, corporate bonds and the dollar last week. While the uncertain US outlook is seen weighing on Europe and Japan's recovery as well, US risks remain the dominant concern.
European data showed more weakness in UK manufacturing and a slight setback in Eurozone and UK service sector surveys. E12 and UK service sector growth fell in June from the previous month, but continued to expand as UK July CIPS services PMI fell to 54.7 from 54.9, while E-12 Eurozone July Services Index fell to 52.6 from 52.9. The data had little effect on the currencies.
Today's US services data is also expected to show a decline in July to 55.0 from 57.2 a month earlier. US traders sold the dollar immediately following Thursday's surprise decline in the July ISM manufacturing survey and the dollar is at risk to a similar fate today if the data falls much more than expected.
As investors reassess global growth expectations, the next move in USD will entirely depend on where investors decide to park their money in a period of slower than expected growth. The new environment will likely shy away from cyclically dependant countries and refocus on safe haven instruments and interest rate differentials, thereby putting upward pressure on the European majors vs the dollar. Most bond strategists are also doubting a strong rebound in US investment grade corporate bonds, which suggests the US will not have adequate foreign capital inflow to finance the growing current account deficit.
EUR/USD fell to a session low of 98.07, after breaking below 98.20, the 50% retracement of the 97.25 to 99.20 rally. But support at 98.00, the 62% of the same move, held and provided a base to rally from. If 98.00 holds, there could be a renewed climb targeting congestion around 98.65. But only a break above trendline resistance at 98.90 would return confidence to euro bulls. A subsequent break above 99.20 would then aim for parity and above. Failure at 98.00 would likely target support at 97.60 ahead of the 97.23 low and key support seen at the July 5 low of 97.10.
Sterling fell sharply across the board after worse than expected manufacturing data showed the UK sector highly susceptible to the recent downturn in global growth. UK Industrial Production fell another 4.3% in June to down -6.6% annually. UK June Manufacturing Production also fell 5.3% in June and was down -8.3% from a year earlier.
GBP/USD fell to a session low of 1.5615 despite the strong rebound in the other majors against the dollar. Support is seen at 1.56 followed by 1.5570, the 50% and 62% retracements of the 1.5470 to 1.535 rally. A break below 1.5570 targets 1.5460, but should hold above trendline support at 1.5450. USD/CHF lost almost one centime in London trade, falling from a session high of 1.4823 but remained nearly half a centime higher from today's opening level. USD/JPY fell to a session low of 118.65, the 38% retracement of the 118.55 to 120.40 rally. The dollar rebounded from here to a high of 119.42 in afternoon Tokyo trade then fell on profit taking in London trade. Renewed enthusiasm bodes well for the greenback but resistance at 119.50, the 50% of 120.40 to 118.65, capped any further gains. Only a move above 119.75, 62% of the same move, would lend confidence for a move back above the 120 level. Above here key resistance is seen at 120.40 and 120.75/80. Failure to overcome these levels would likely lead to a renewed decline targeting the 118.00 handle. Japan's leading indicator in June fell to 70 from 90.0 in May. The June coincident indicator fell to 77.8 down from 100.0 in May. Both are still well above the neutral level of 50, giving a healthy indicator of Japanese economic conditions, but Japan's recovery is highly dependant on the US economy and could succumb to further weakness if US growth continues to slow.