Important US readings coming this afternoon

Fundamental View

This morning we saw European Services PMI print lower numbers across the majority of countries. Spain printed its lowest number in a year at 52.7 and France printing lows at 47.9. Although Italy printed a higher number than expected it was clear that the health of the Eurozone has deteriorated somewhat, with even Germany’s Composite PMI printing lower. This has seen the Euro weaken against all major pairs, with the EURUSD hitting the lowest level since 2012 at 1.2326. We have also seen the Euro weaken notably against sterling as UK Services PMI read upwards at 58.6; this has driven EURGBP lower towards the bottom quartile of the range. Ahead of the ECB rate decision tomorrow the EURUSD sell off can be expected however we feel that many market participants are overstating the likelihood of action by the ECB this week. Overall it is likely that the Governing Council believe it is too early for action. We therefore expect that this will be reflected in Draghi’s comments and are likely to be more Hawkish than Draghi’s previous speech a couple of weeks ago. It is likely that with the TLTRO next week that he will make mention of this and emphasise that we still need to assess current measures. However we are certain that Draghi will be reassuring in his dovish policy and refer to additional instruments which he has at his disposal. We have also seen Dollar-Ruble make lows and highs off of Russian Central Bank intervention, swiftly driving prices higher to test pivot before calming down. This is the second such intervention this week, adding volatility to the already difficult pair.

Today’s View

This afternoon we have a number of important readings from the US. ADP Employment change is due at 1315, with an estimated read of 222k. This is often used as an indicator for Non-Farm Payrolls on Friday so a number below 200k could potentially see some tangible dollar weakness, pricing in a lower reading on Friday. We also have Services PMI and ISM Non-Manufacturing, rounding the afternoon off with Crude oil inventories. We are expecting the majority of the US data to come in-line with expectations however Crude could see some potential weakness. With Crude on the back foot we are looking for any opportunities to see a reversal in this down move. Crude is holding around the $67-68 handles. API Crude oil inventories has assisted our strategy as it showed a near 7m barrel drawn down, so we are expecting similar draw downs in the DOE release this afternoon which should serve to further stabilise price.

Alternative View

Some tier 2 US data this afternoon with two voters speaking after European close. We are looking for careful trades this afternoon as data risks enter the market. Data risk this afternoon are the biggest stonewalls for the session and out-of-line readings will invalidate our strategy.