European Data Revised Down; GBP Relief Rally; Focus Turns To US Factory Orders

USD is mixed since London open. It trades little changed against EUR, AUD, NZD and JPY and weaker against GBP and CHF. GBP is rallying on a relief that PMI services came out marginally higher and CHF is stronger after a series of disappointing data releases from the Euro zone.

During the Asian session, RBA kept rates as expected at 4.75%. In the accompanying statement RBA said that it deems monetary policy appropriate and that it expects CPI to be close to their target over the next year. It seems that as long as CPI does not inch higher, RBA may keep rates unchanged for a period of time.

GBP is rallying across the board in a relief rally after Services PMI for June increased slightly to 53.9 from 53.8. Data from the UK was mostly disappointing over the past few weeks and sentiment towards the GBP was negative. As long as there is a talk about the possibility of more QE in the UK, it is unlikely that GBP would be able to stage any meaningful recovery.

Euro zone data came out lower than expected. German PMI services were revised down to 56.7 from 58.3 and Euro zone PMI Services were revised to 53.7 from 54.2 which is the fourth back to back decrease and worst print since November 2010. Euro zone Retail Sales for May printed -1.1% from previous +0.7% which translates to -1.9% on a year to year basis.

In response to the disappointing Euro zone data, the CHF started to appreciate against the EUR. EURCHF fell about 100 points to 1.2204 which helped to pull USDCHF back down to 0.8427.

New York session has only one significant news release. US Factory Orders for May are due at 10:00 am ET and are expected to increase sharply to 1.1% from a previous drop of -1.2%. Durable Goods released at the end of June surprised to the upside and even experienced a positive revision for the previous month. Durable goods make up more than half of factory orders so a case can be made that Factory Orders will in fact increase sharply.

Patrik Urban