Mid-Day Report: Dollar Up on ISM, Sterling Down on PMI
Dollar strengthened mildly in early US session after ISM manufacturing index unexpectedly rose to 54.8 in April, versus expectation of a fall to 53.0, best number since last June. Looking at the details, production, new orders and supplier deliveries improved while invesntories dropped. Meanwhile, the closely watched employment component also rose from 56.1 to 57.3, also the best number since last June. Dollar is back above 80 level against the Japan yen even though the recovery is relatively mild elsewhere.
Sterling was weighed down by weaker than expected PMI data. PMI manufacutring dropped from 52.1 to 50.5 in April versus consensus of 51.5m lowest since last December. Looking at the details, new export orders had the sharpest fall since May 2009 while overall new orders dropped for the first time since November. Weak external demand, in particular from Eurozone, is exerting some pressures on UK's manufacturing sector. More PMI data will be released later this week, including services and construction. Sterling is so far relatively resilient as supported by expectation that BoE won't extend the quantitative easing program in near term. But sentiments would turn if we continue receive more bad data from UK. Also released today, Holland PMI manufacutring dropped from 49.6 to 49.0 in April. Ireland PMI manufacutring dropped from 51.5 to 50.1 in April.
The RBA lowered the cash rate by -50bps to 3.75% in April as economic developments since the last meeting has weakened and inflation has moderated. The central acknowledged the growth later in the year would be 'below-trend' but a deep downturn is not likely. The Australian dollar, which slipped ahead of the meeting, declined further after the rate decision. Also, RBA delivered a more dovish outlook on the domestic economy, citing the country's output growth as 'below trend over the past year' due to both temporary factors as well as the 'persistently high exchange rate'. Policymakers also acknowledged that the job market 'softened'. Concerning inflation, recent indicators have shown a decline in price level. Over the last 4 quarters, core CPI was just 'a little over 2% while headline CPI also fell to just over 1.5% recently. Yet, the RBA anticipated that inflation will stay in the 2-3% target over years. More in RBA Cut Cash Rate To 3.75%.
The official China manufacturing PMI rose from 53.1 to 53.3 in April, below expectation of 53.6. Though, the number stayed above 50 for the fifth month, indicating continuing expansion. Pressure on further policy stimulus is somewhat eased. But the overall outlook is still gloomy. Today's data was in sharp contrast to the HSBC manufacturing PMI, which stayed below 50 for the sixth consecutive months in April at 49.1. The different weighting of the two indices, with the HSBC manufacturing PMI more towards smaller businesses, suggests that much is still needed from the Chinese authorities through adjusted liquidity release to the markets.
GBP/USD Mid-Day Outlook
Daily Pivots: (S1) 1.6202; (P) 1.6251; (R1) 1.6282; More...
Intraday bias in GBP/USD remains neutral for the moment and more consolidations could be seen below 1.6300 temporary top. Deeper retreat might be seen but downside should be contained by 1.6060 resistance turned support and bring another rise. Above 1.6300 will extend recent rally to 100% projection of 1.5234 to 1.5991 from 1.5602 at 1.6359 next. As noted before, whole decline from 1.6764 is finished at 1.5234 and current rise could target this 1.6746 resistance and above.
In the bigger picture, price actions from 1.3503 (2009 low) are treated as consolidations to long term down trend from 2.1161, no change in this view. Current development suggests that such consolidation is still in progress with rise from 1.5234 as another rising leg. Some resistance might be seen below 1.6746 if that's a triangle pattern. But this is far from being certain. Indeed, rise from 1.5234 could eventually break 1.7043 resistance before completion. But after all, strong resistance should be seen at 50% retracement of 2.1161 to 1.3503 at 1.7332 to limit upside to conclude the consolidation.
Economic Indicators Update
||PMI Manufacturing Apr
||House Price Index Q/Q Q1
||RBA Rate Decision
||PMI Manufacturing Apr
||ISM Manufacturing Apr
||ISM Prices Paid Apr
||Construction Spending M/M Mar
||Monetary Base Y/Y Apr
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