EUR/USD
In the first half of the session, focus for the pair fell on the plethora of Eurozone PMI releases. However, the German and French releases were final readings and failed to deviate too substantially from expectations. Focus instead turned towards the Italian and Spanish releases, despite the Spanish number exceeding expectations, participants focused on the particularly weak Italian reading (M/M 52.8 vs. Exp. 53.8) and saw the pair move lower towards the carefully-eyed 1.3400 handle. Despite talk of reserve manager bids ahead of 1.3400, the pair broke below the level as concerns over Eurozone confidence and the backlash of Russian sanctions weigh on investor sentiment. The move to the downside was then exacerbated alongside talk of leveraged US names selling EUR/USD ahead of stops at 1.3380. The EUR weakness also came amid a continuation of strength in the USD index, which further extended its gains above the key 81.00 level. Moving forward, with today’s PMIs out of the way attention turns towards Thursday’s ECB rate decision. The central bank are expected to keep rates on hold while the press conference is likely to be used as an opportunity by ECB’s Draghi to massage market expectations and to reiterate that there is plenty of excess liquidity in the system to offset the ongoing 3y LTRO repayments.
GBP/USD
Despite succumbing to the broad-based USD strength in the early stages of trade, all eyes for the UK today were on the UK services PMI given the importance of the services sector to the UK economy. The release went against the grain of recent releases (59.1 vs. Exp. 58.0) by printing its highest reading for 2014. This saw an immediate fast-money move higher in the pair of over 30 pips as the pair moved back towards the 1.6900 handle, with price action exacerbated by the move lower in the EUR/GBP following the post-PMI weak EUR. However, prices came off these highs as USD strength prevailed with a lack of notable economic commentary elsewhere to drive price action. Elsewhere for the UK, NIESR raised their 2014 and 2015 UK GDP forecasts, while Moody’s downgraded their outlook for the UK banking sector to neutral from stable, although the pair failed to react to either of these factors. Looking ahead, attention for the UK now turns to the BoE decision, although this is expected to be largely a non-event as the MPC are widely expected to keep rates on hold.
AUD/USD
Focus for the pair today was on the RBA’s rate decision where the central bank kept their cash rate at 2.50% alongside expectations. In terms of the accompanying statement, the RBA reiterated their view that AUD remains highly valued on a historical basis and thus saw the pair move higher with no new rhetoric to drive the pair lower. From a data perspective, today saw a narrowing of the Australian trade balance (M/M -1.683bln vs. Exp. -2.000bln) which subsequently provided the pair with a modest move higher. However, focus overnight from a data perspective was on the Chinese HSBC services PMI (50.0 vs. Prev. 53.1), which fell to the lowest rate on record, indicating that the Chinese services sector failed to grow at all for the first time in nine years. This subsequently left the pair lower alongside the stronger USD given Australia’s ties to the Chinese economy, with AUD/USD breaking below its 100DMA seen at 0.9327.