Forex: Euro May Extend Gains as PMI Data Bolsters Neutral ECB Outlook

Talking Points

The Euro’s Post-ECB Rally May Find Added Fuel in PMI Data
Pound May Come Under Pressure if Services PMI Disappoints
Yen, NZ Dollar Correct Lower After Outperforming Yesterday

The Euro continued to out push higher in overnight trade having rallied in the aftermath of a broadly-status ECB policy announcement, as expected. The New Zealand Dollar and Japanese Yen underperformed, falling as much as 0.4 and 0.5 percent respectively against their top counterparts. Given an absence of defined event-driven catalysts, the move likely reflected profit-taking after the two currencies led the way higher in the preceding 24 hours.

Looking ahead, the final revision of September’s Eurozone Composite PMI reading is expected to confirm flash estimates showing the pace of manufacturing- and service-sector growth accelerated for a sixth consecutive month, hitting the strongest level since June 2011. The result may help scatter bets on a near-term expansion of ECB stimulus efforts and fuel continued Euro gains. Follow-though could prove limited however considering the markets have been busy pricing in precisely this message since yesterday.

Separately, the UK Services PMI reading is expected to come in at 60.5 in September, unchanged from the prior month. That was the highest result since December 2006. Surprise risk is on the downside however following disappointing manufacturing and construction PMIs released earlier in the week. UK economic news-flow has steadily deteriorated relative to expectations since mid-August (according to data compiled by Citigroup), amplifying the chance of a disappointing outcome. The British Pound may be pressured lower if a soft result does materialize as investors adjust their BOE policy bets accordingly.

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Asia Session:

GMT

CCY

EVENT

ACT

EXP

23:30

AUD

AiG Performance of Service Index (SEP)

47.1

–

39.0

1:00

CNY

Non-manufacturing PMI (SEP)

55.4

–

53.9

Euro Session:

GMT

CCY

EVENT

EXP/ACT

IMPACT