London Session

Risk taking and better economic data across the pond saw the US dollar come under some intense pressure in London trading.
European bourses have added more than 1% across the board while US futures trade well in the green. August PMI data out of the eurozone blew away expectations and was the major catalyst for the price action.
Eurozone PMI manufacturing was only a touch better at 47.9 from 46.3 the prior month but the services counterpart shot up to 49.5 from 45.7 prior. This helped the composite rise to 50.0 from 47.0 and right on the line that divides growth and contraction. This suggests that the eurozone recovery is perhaps coming a touch quicker than in the US, which had the ISM in July sitting at 48.9.

EUR/USD rocketed from a low 1.4209 towards the 1.4330/40 area ahead of the NY open on the back of the improved sentiment. The move looks a touch overdone, however, and we are hearing better sellers of EUR/USD likely to emerge into the 1.4350/55 zone. Cable followed on the EUR coattails and shot from a 1.6419 low to near the 1.6560/70 zone recently. The commodity currencies were also better bid as oil continues to defy gravity here, trading near the $74 highs. This helped AUD/USD recover from a spill to 0.8217 to the 0.8340/50 highs at last look. This was bad news for USD/CAD, which saw a slow grind from the 1.0944 highs towards the 1.0830/20 area more recently. The 1.08 zone was where the Bank of Canada provided some verbal intervention back in June and thus we expect this to be decent support in the short-term.

Looking ahead to the NY session, all eyes will be glued to the screens at 10am ET. US existing home sales are due at that time and expected to rise to 5.00M in July from 4.89M prior. This would be the first 5 million print since September. Fed Chairman Bernanke is also due to speak at that time and we expect some headlines on the economy and perhaps interest rates. This is the Jackson Hole symposium that is well-known for market moving musings.
Indications that the Fed is ready to raise rates sooner than anticipated coupled with a rosier outlook on the economy should help the risk trade extend further. Watch for a positive reaction in USD/JPY should yields shoot up on any hawkish Bernanke comments.

Upcoming Economic Data Releases (NY Session) prior expected