There was an important sense of market tension on Monday given the potential importance of events this week with two key European central bank meetings on Thursday as well as Friday’s crucial monthly US payroll report. In this context, there was a reluctance to sustain aggressive positioning as players looked to tease technical levels, but struggled to gain any significant momentum as third quarter trading got under way.
The latest CFTC report indicated a small decline in net long speculative positions in the latest reporting week and there was still a net long Euro position which dampened expectations that the dollar had become overbought following strong gains seen over the past 10 days.
There was some easing of dollar demand against the Australian dollar following the collapse seen in US trading on Friday. There was AUD/USD support on dips towards 0.91 and a recovery back to above 0.92 during New York trading with some relief that the official Chinese PMI index, although unconvincing, did at least hold above 50.
There was a small upward revision to the Euro-zone PMI manufacturing index and sentiment was boosted by a Spanish reading at the 50.0 level for June, the first time it had not been below 50 for over two years.
Markets remained extremely sensitive to economic data and Fed rhetoric given the potential impact on yield expectations. June’s ISM manufacturing index had an important impact last month with a reading below 50 for the first time since December. There was a recovery to 50.9 for this month, easing immediate fears surrounding the outlook. Individual components were generally stronger with only the employment index causing disappointment at below 50 for the first time since September 2009.
There was some relief surrounding the data, but the release was not strong enough to break the underlying deadlock as USD/JPY, for example, was unable to break above the 100 level. EUR/USD found support on dips to the 1.3000 area and edged higher while unable to break above the cluster of resistance levels above the 1.3070 region.
The UK PMI manufacturing report was stronger than expected with an improvement to a 25-month high of 52.5 for the latest release from a revised 51.5 previously. There was also a significantly stronger than expected release for mortgage approvals which maintained expectations of an improvement in the housing sector. The only disappointing aspect of the release was a subdued reading for consumer lending.
GBP/USD bounced off the 1.5185 support area following the data and moved towards 1.5250, but was unable to sustain upward momentum and tended to drift weaker again in US trading.