Do not anticipate a major break of the lows in the EURUSD pre-Draghi

The Day So Far

Positive start to the day, carrying on from the broadly positive Asian session as investors looked beyond another weak Chinese Manufacturing PMI to ensure December got off to a bullish start. The willingness of markets to shrug off the PMI data, where both the official reading and the private one came in at sub-50, suggests that the slowdown in the world 2 or slightly below, has largely been priced in and markets are looking ahead to the other main events later on this week. Elsewhere in emerging markets, the Indian manufacturing PMI in November reached its lowest level since 2013; this is certainly more of a worry in terms of global growth, particularly given how strongly the Indian economy has performed on a relative basis since the commodity super cycle came to an end in 2011. Brazil also delivered some unwelcome news this morning, its economy contracting for a third straight quarter for the first time to records began in the mid-1900s. There was better news in Europe as the region’s unemployment rate ticked to its lowest level in three years and the region-wide Manufacturing PMI came in inline with expectations of 52.8 for November. The dollar has given back some of yesterday’s gains as investors position ahead of the key US data later today and in the week, while equities remain stuck in tight ranges, lacking a catalyst to break higher and lower at this point. We expect these ranges to hold until the ECB meeting on Thursday.

The Afternoon View

Particular attention should be paid to the ISM Manufacturing Survey at 15:00 BST, the highlight of an afternoon calendar which also includes Construction Spending and the US Manufacturing PMI. We have seen nothing to change our bearish bias across all four products few cover, the topside of the range in S&P between 2092-2094 a solid entry point and our 2 area of support in recent weeks. For the Euro, short R2 if we get a 2 of the low of the day implies that we do not anticipate a major break of the lows in that currency pair pre-Draghi. We are short crude too, looking for the low of yesterday and today of $41.30 to be broken ahead of tonight's API release. Please note that equities and fixed income appear to be slightly positively correlated, negating the traditional risk-on/risk-off correlation we are so used to seeing. This is in anticipation of further stimulus from the ECB and is likely to remain the case in the run-up to and immediately after the meeting, whether Draghi delivers or disappoints.

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