Choppy trading was the main market feature on Wednesday with markets nervous ahead of Thursday’s ECB decision with dollar buying on dips. The Australian dollar spiked higher following a stronger than expected GDP release at 1.1%, but AUD/USD hit tough resistance on approach to the 0.9300 level and reversed lower with markets also taking a less positive tone towards the GDP details.
As global equity markets held a firm tone in Asia, USD/JPY was able to move higher to the 102.80 area while EUR/JPY continued to take advantage of a strong rebound from 138.0 support and pushed towards 140.0.
Euro-zone PMI services-sector data was slightly weaker than expected, although the overall impact was limited with EUR/USD holding above 1.3600. Positioning was inevitably an important factor ahead of a crucial ECB council decision. There were still concerns that any ECB action has already been priced in and may not be aggressive enough to put further downward pressure on the Euro and there were reservation over being aggressively short into the decision.
Although the ECB is a crucial focus this week, there are also an important raft of US data releases which could potentially have an important impact both on sentiment and Fed policy. The latest ADP employment report was slightly disappointing with an increase in private-sector employment of 179,000 for May from a downwardly-revised 215,000 the previous month. There was some negative dollar reaction, especially with the risk that Friday’s payrolls estimates will be pegged back.
A substantially worse than expected trade release did not have a major currency impact and the ISM non-manufacturing index was stronger than expected at 56.3 from 55.2 previously with a jump in the orders component. Markets inevitably were on tenterhooks for any data correction following Monday manufacturing fiasco, but there was a solid US tone with the currency gaining support from a push in benchmark US Treasury bond yields to above 2.60%. EUR/USD consolidated just above 1.3600 with USD/JPY finding support below 102.50.
The latest UK PMI services-sector index was stronger than expected at 58.6 and only down fractionally from the 58.7 recorded for April. GBP/USD had been under pressure into the release with a test of support at the 1.6700 area and relief surrounding the release pushed the pair back to 1.6730 in an immediate response with modest gains on the Euro cross.
As expected, the Bank of Canada left policy on hold at the latest meeting with rates at 1.00%. The bank statement was generally dovish and USD/CAD looked to move above the 1.0940 resistance area even with short-term indicators generally overbought.