Daily FX Wrap: Caixin PMI prints a 78-month low while ECB speakers struck a less dovish tone than expected to bolster EUR.
Overnight saw the release of Caixian Flash Manufacturing PMI, which printed at 47 vs. exp. 47.5, its lowest level since 2009. A reading above 50 implies improving conditions while a reading below 50 implies deteriorating conditions and Chinese manufacturing has shown a contraction now for 78 consecutive months. As a result, cautious sentiment stemming from a negative Wall Street close was exacerbated and JPY was bolstered amid safe haven flows while AUD weakened given Australia’s reliant trade relationship with China. Sentiment reversed as European participants came to market however, to see an unwind of safe haven bids in JPY and the move pare throughout the day.
There were a number of notable speakers today including ECB’s Jazbec and Nowotny who both downplayed the possibility of QE extension from the ECB and as such bolstered EUR. ECB’s Draghi saw the most substantial reaction while speaking at the quarterly hearing in Brussels and largely gave a reiteration of previous comments regarding a wait-and-see attitude, suggesting the central bank will alter policy as appropriate and thus offering little in terms of new insight, with some expecting a more dovish rhetoric. Consequently, EUR rose on the back of the comments, with weakness seen in both EUR/USD and EUR/GBP, as the latter broke its 200 DMA to the downside at 0.7303 and subsequently saw GBP/USD move lower continuing its trend from yesterday.
Looking ahead, tomorrow sees Japanese participants re-enter the market after national holidays since Friday to see the manufacturing PMI, while elsewhere there is the German IFO survey release, US weekly jobs data, durable goods orders and EIA Natural Gas storage change, as well as comments from Fed’s Yellen, ECB’s Liikanen and Praet.