[B]Talking Points
• Australian Dollar: RBA holds hints that policy will remain neutral for time being
• Pound: Drops below 2.0400 as housing PMI Services suggest cut in the making
• Euro: Hovers around 1.4700 as PMI data better but Retail Sales weigh
• US Dollar: ADP will be key[/B]
With the exception of the pound which broke the 2.0400 figure in the aftermath of soft UK housing and PMI Services data, the majors continued to quietly consolidate as markets awaited the first clues regarding the US labor outlook from the ADP survey due to be released at 13:15 GMT later today. With a 25bp rate cut from the Fed a near certainty according to fed funds futures, the only question facing market participants is whether the Fed will loosen monetary policy even further by lowering interest rates by 50bp rather 25bp at next week’s FOMC meeting.
The US employment picture may go a long way in determining Fed’s policy choice which is why today’s ADP report could be the key to wether the dollar will strengthen or weaken in the North American session. A print of less than 50K in the ADP estimate could prompt further dollar selling as traders will begin to anticipate a possible 50bp cut form the Fed.
Meanwhile, economic news from across the pond was relatively negative for both euro but especially the pound. Cable broke below the 2.0400 barrier as further weakness in the HBOS housing survey and lower than expected PMI services reading put more pressure on the BoE to cut rates at tomorrow’s meeting of the MPC. The currency market is even more convinced that BoE will loosen in light of the fact the BOC – which oversees economic fundamentals considerably stronger that those of the UK - surprised with a rate cut yesterday. However, should the BoE hold rates steady for another month cable could very well bounce as all of the late shorts put on today may be forced to cover creating a knee jerk retrace rally that could take the pair back to 2.0600
Finally the Eurozone, economic news continues to show a clear duality as business growth remains relatively healthy but consumer spending weakens materially. Today’s news that the EZ Retail Sales slipped by -0.7% vs. -0.2% projected hardly bodes well for euro bulls hopes of another hike out of ECB in Q1, but may not matter in the markets today as all eyes will be focused on the US data.
