FOREX TRADING

Risk sentiment surged on positive economic data as well as beginning of month asset allocation. The positive news stream continued from last night’s release of China’s August manufacturing PMI which surprised to the upside printing 51.7 vs. expected 51.5. The risk rally continued as we received uplifting news from down under on much stronger than anticipated 2Q Australian GDP numbers (+1.2% vs. +0.9% expected). The economic data out of the U.S. showed a disappointing ADP employment change for August dropping to -10K from the prior 37K (cons. 15K). This was the first negative ADP reading since January of this year. The market reaction to the labor data was relatively muted and it was the August ISM manufacturing data which was released at 56.3 well above the anticipated 52.7 and stronger than the prior 55.5. Construction spending came in weaker than forecasted (-1.0% vs. expected -0.5%) but was shrugged off as the market focused on the strong ISM numbers.

With so much talk this week about the focus on U.S. employment data it comes as a bit of a surprise that the market seemed to disregard the negative ADP print. Risk on was in full effect and the usual safe havens, the U.S. dollar, the Japanese yen, and the Swiss franc declined as investors sought riskier assets. EUR/CHF rocketed from near all time lows around 1.2850 to roughly 1.3040 before settling to current levels around 1.3000. EUR/USD surged from under 1.2700 to highs just above 1.2850 before finding supply to bring it to 1.2800 currently. USD/JPY traded near 15-year lows early in the session making lows around 83.65/70 and climbed to 84.65/70. Yen-crosses traded higher across the board on a softer yen.

U.S. equities rallied sharply with the DJIA advancing by about +2.54% and the S&P 500 gaining about +2.95%. The stock markets saw their largest daily percent gains since early July, a good start to a historically negative month. Gold and silver declined on the reduced demand for safe havens. The yellow metal dropped by about -0.21% and silver fell roughly -0.03%. Oil gained by around +2.84% on positive economic growth prospects and lower distillate inventories.

Economic data due out of the Asia/Pacific session includes the Japan’s weekly securities figures and July Australian trade balance.

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