Solid data from the US released yesterday prompted a further rally in the US dollar reinforcing the case for further monetary tightening from the Federal Reserve. The ISM Services report came in at 54.5 against expectations of 52.5, keeping the dollar index hovering close to its highest level since the end of March. The pound dropped after the data release pushing cable below support at 1.2550 to trade as low as 1.2490 before recovering a little to consolidate around 1.25 this morning. Similarly, EURUSD fell to within a whisker of 1.07, further weakened by nasty German factory orders which came in at -11.7% against expectations of -4.3% further highlighting the ECB’s dilemma as the economy continues to struggle. USDJPY continues to trend higher, targeting 148, although the market remains wary of potential intervention which may materialize should we reach 150.
The single currency may come under renewed pressure today as we await final eurozone second quarter GDP data along with German Industrial Production data. Rising interest rates continue to take their toll on growth in Germany and markets expect a further decline in industrial production dragging on economic activity. A breach of the psychological 1.07 level opens a move to test 1.0610, whilst 1.0750 comes in as initial resistance in the pair.
This afternoon we await the release of US jobless claims as well as a full calendar of Fed speakers as analysts seek fresh clues from the central bank before we enter the black out period ahead of the Sep 20 FOMC decision.