Markets struggled for direction on Monday with narrow ranges prevailing. Trading following the monthly US payrolls report is often lacklustre which certainly proved to be the case this time and there were additional factors to depress volatility with both Tokyo and London closed for market holidays.
China’s final HSBC PMI index recorded a further deterioration from the flash reading at a fresh low of 48.1 from a flash 48.4 which tended to put risk appetite on the defensive. USD/JPY was unable to gain any traction following Friday’s sharp reversal and dipped to test key support below the 102 level.
The latest CFTC positioning data recorded a drop in net short positions in the latest week with Euro and Sterling longs broadly stable which offered little in the way of fresh impact with no increase in the dollar’s over-sold position. EUR/USD continued to find support from the sharp reversal seen following Friday’s payroll’s release with robust capital inflows into the Euro area.
Latest Euro-zone data releases also failed to provide fresh impetus with the Sentix investor-confidence index edging lower to 12.8 for April from 14.1 previously. The latest EU Commission economic forecasts continued to paint a rosy picture of economic prospects even though there was a slight trimming-back of growth forecasts and a lower inflation forecast with consumer prices expected to rise 0.8% and 1.2% respectively over the next two years compared with the 2% ECB target.
The Markit US PMI services was revised higher to 55.0 from a 54.2 flash reading while the ISM non-manufacturing index strengthened to 55.2 for April from 53.1 as orders rose strongly. The data had some impact in reversing earlier bond-market strength and also helped protect the dollar as the US yield curve steepened slightly. EUR/USD found some support weaker than 1.3880 as ranges remained very tight while USD/JPY was able to regain the 102 level following the US data.
Sterling was an under-performer during the day as a political battle threatened to erupt surrounding Pfizer’s bid for AstraZeneca. Any action to block a merger would tend to undermine expectations of capital inflows and tend to weaken Sterling. GBP/USD drifted lower to test support near 1.6850 while EUR/GBP moved away from the 0.8200 support area.