Daily FX Trading Review: BOC Maintains Neutral Stance – Sept 4, 2014

Daily FX Trading Review: BOC Maintains Neutral Stance - Sept 4, 2014

The US dollar edged slightly lower to its FX trading counterparts when the US economy printed a weaker than expected factory orders report. It showed a 10.5% gain versus the estimated 10.9% increase, although the previous month’s report was upgraded to show a 1.5% rise. Total vehicle sales was stronger than expected at 17.5M versus the projected 16.5M figure. Meanwhile, the Fed Beige Book revealed that most districts saw economic improvements in the past months. For today, Challenger job cuts and ADP non-farm employment change data are due and might provide clues on how the NFP release might turn out.

The euro recovered a bit to the dollar but edged lower to most of the higher-yielding currencies, as FX trading participants continued to price in expectations of easing or dovish remarks from ECB Governor Draghi in today’s rate statement. Data from the euro zone was mixed, with the Spanish services PMI coming in stronger than expected at 58.1 while the Italian services PMI and euro zone overall services PMI fell short of consensus. Euro zone retail sales also fell short as it printed a 0.4% decline instead of the estimated 0.3% dip. For today, the ECB statement should set the tone for euro price action both in the short-term and long-term.

FX Trading Fundamentals

The pound failed to bounce back despite stronger than expected services PMI from the UK. The report showed a climb from 59.1 to 60.5, reflecting a stronger expansion in the industry. The BOE rate decision is scheduled today and policymakers are not expected to announce any changes in interest rates or asset purchases. Any changes in the actual statement could provide clues on whether or not policymakers are becoming more optimistic about the economy, which might then dictate the pound’s FX trading direction.

The franc advanced to the dollar recently, despite the lack of data from Switzerland. There are still no reports due from the country today, which means that the franc might take its cue from euro price action or from FX trading market sentiment.

The yen had a mixed FX trading performance, as it gained ground to the pound but continued weakening against the commodity currencies. Traders are pricing in expectations of dovishness from the BOJ statement today, although profit-taking might take place before the actual event or if Kuroda doesn’t show any inclination to ease at all.

The Australian dollar was able to hold its ground in recent FX trading, as Australia reported a stronger than expected GDP reading of 0.5% versus the projected 0.4% expansion. The Loonie was also able to benefit when the BOC stuck to its neutral stance and kept monetary policy unchanged. As for the Kiwi, its gains were limited as the latest dairy auction in New Zealand turned out weaker than expected again.

To contact the reporter of the story: James Brennan at james@forexminute.com