Forex Afternoon Wrap for February 4th

Key Forex Afternoon Notes:

• RBNZ Governor Wheeler Speech
• China HSBC services PMI 51.8 vs. 53.4 previously
• Spain services PMI 56.7 vs. 54.4
• Italy services PMI 51.2 vs. 50
• France services PMI 49.4 vs. 49.5
• Germany services PMI 54 vs. 52.7
• Eurozone services PMI 52.7 vs. 52.3
• UK services PMI 57.2 vs. 56.3
• Eurozone retail sales m/m 0.3% vs. 0%; retail sales y/y 2.8% vs. 2%
• US ADP employment change 213k vs. 220k

Later:

• US services PMI
• Canada Ivey PMI
• ISM nonmanufacturing PMI

The currency markets got off to a quiet start with the Aussie and Kiwi dollars gaining on the backdrop of RBNZ Governor Wheeler’s speech, which was largely considered to be market neutral. In light of the dovish outlook amongst most central banks, the market neutral speech was seen as a green signal for the risk commodities to rally.

The Japanese Yen retreated into the early Asian trading session before managing to stabilize at the European open.

The European trading session saw a measure of services PMI’s across various Eurozone economies and from the UK. While services PMI managed to largely beat estimates, French services PMI disappointed, falling below estimates, but overall the Eurozone services PMI managed to rise above estimates. Retail sales from Eurozone also saw an upbeat print, which was supportive of the Euro. The single currency rallied, briefly trading above 1.15 before retracing its gains.

The major mood in Eurozone was focused on the debt negotiations between Greece and the ECB and the EU commission. Going by the market sentiment, there is a positive expectation on the ongoing debt negotiations, especially after it was reported that two Greek banks had tapped into the ECB’s emergency funding.

In the UK, services PMI beat estimates with the major takeaway being that higher salaries were being paid in the services sector, a view that was consistent of putting upward pressure on wage growth.

The British Sterling continued to trade higher against the Greenback, trading close to the 1.52 handle, despite some downward risks and ahead of the US data.

Crude oil futures were largely unchanged ahead of the Crude oil inventories report. We expect a possible dip to the downside before we start to see a continuation of the corrective rally.

During the European trading session, there was also news that China’s PBOC gut its reserve requirement for all Chinese banks by 50 bps, the news instantly saw a spike in the commodity risk currencies as the Aussie and Kiwi dollars managed to briefly spike higher before settling down on the news and resuming their general trend.

From the US, after the disappointing factory orders data, the markets were eager to get a glimpse of the labor market for the month of January. ADP reported 213k new jobs being added, below estimates of 220k and below previous month’s 241k print. The markets were mixed on the news with the US Dollar managing to hold its ground ahead of other news releases including services and non-manufacturing PMI.