Mid-Day Report: Dollar Firm as ISM Services Beat Expectations

Dollar strengthens in early US session after better than expected services data. ISM non-manufacturing composite rose to 58.7 in July versus expectation of 56.6. That’s also the best reading since December 2005. Looking at some of the details, new orders surged to 64.9, hitting the highest level since August 2005. Employment component also jumped to a six-month high of 56.0. business activity gauge improved to 62.4, highest since February 2011. Overall, the set of data suggested that US economy would strengthen further in Q3. Also released from US, factory orders rose 1.1% in June versus expectation of 0.6%.

Sterling recovered strongly against Euro today after stronger than expected services data. PMI services rose to 59.1 in July versus consensus of 58.1. Markit noted that “the vast services economy’s growth surge shows no sign of abating.” And, the PMI reading were consistent with projection of quarterly growth rate of 0.8%, much stronger than the long-term average of 0.5-0.6%. Meanwhile, Markit also noted that the “an absence of inflationary pressures means there is still a strong case for any tightening of policy to be delayed until 2015.” However, some analyst said the resilience service sector performance could prompt BoE policy makers to rethink whether they should start hiking rates before year end. On the other hand, Eurozone services PMI was revised down to 54.2 in July. Eurozone retail sales rose 0.4% mom in June as expected. Italy services PMI dropped to 52.8 in July versus expectation of 53.2.

The RBA left the cash rate unchanged at 2.5% for a year in August, marking the second-longest period of stable interest rates since the RBA started setting the cash rate in the mid-1980s. The accompanying statement delivered few changes to the economic and monetary policy outlook. The RBA noted firmed growth but attributed the rise in inflation to temporary factors. It continued to warn over the strong Australian dollar. Policymakers reiterated that ‘the most prudent course is likely to be a period of stability in interest rates’ given current economic indicators. More in RBA Left Rate Unchanged, Attributed Rise In Inflation To Temporary Factors. Also released from Australia, trade deficit narrowed to AUD -1.68b in June with 0.9% yoy growth in exports and 4.8% yoy growth in imports.

Released from China, the HSBC services PMI dropped to 50.0 in July, hitting the lowest level since November 2005 when the series began. That compared to 53.1 in June, which was a 15-month high. HSBC noted that “today’s data points to the need of continued policy support to offset the drag from the property correction and consolidate the economic recovery.” Released over the weekend, the official non-manufacturing PMI dropped to 54.2 in July.

Daily Pivots: (S1) 1.3410; (P) 1.3420 (R1) 1.3432; More….

EUR/USD’s breach of 1.3366 temporary low suggests that recent decline is resuming and intraday bias is back on the downside. Current fall from 1.3993 is expected to continue to 100% projection of 1.3993 to 1.3502 from 1.3700 at 1.3209 next. On the upside, break of 1.3444 resistance is needed to signal short term bottoming. Otherwise, outlook will stay bearish in case of recovery.

In the bigger picture, overall price actions from 1.6039 is viewed as a corrective pattern. One interpretation is that fall from 1.6039 to 1.2329 was the first leg. Price actions from 1.2329 were the second leg, in form of a triangle. In such view, the fifth leg of the triangle pattern could have completed at 1.3993 already. In other words, the decline from 1.3993 is resuming the fall from 1.16039. Medium term outlook will now stay cautiously bearish as long as 1.3700 resistance holds. Break of 1.2755 key support level will raise the chance of an eventual break of 1.1875 low.

EUR/USD 4 Hours Chart

EUR/USD Daily Chart

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
01:30
AUD
Trade Balance (AUD) Jun
-1.68B
-2.00B
-1.91B
-2.04B
01:45
CNY
HSBC China Services PMI Jul
50

53.1

04:30
AUD
RBA Rate Decision
2.50%
2.50%
2.50%

07:45
EUR
Italy Services PMI Jul
52.8
53.2
53.9

08:00
EUR
Eurozone Services PMI Jul F
54.2
54.4
54.4

08:30
GBP
Services PMI Jul
59.1
58.1
57.7

09:00
EUR
Eurozone Retail Sales M/M Jun
0.40%
0.40%
0.00%
0.30%
14:00
USD
ISM Non-Manufacutring Composite Jul
58.7
56.6
56

14:00
USD
Factory Orders Jun
1.10%
0.60%
-0.50%
-0.60%

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