Dollar, Euro and Yen May Rise as US Data Weighs on Market Mood

Talking Points:

US Dollar, Euro and Yen May Rise as US Data Triggers Risk Aversion Anew
Commodity Dollars Rise as Sentiment Trends Correct After Rout Overnight
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The Australian, Canadian and New Zealand Dollarsrose amid a broad-based risk appetiterecovery in overnight trade. Meanwhile, the anti-risk Euro and Japanese Yen faced selling pressure as most financial markets traced out a correction following yesterday’s widespread rout. The Aussie lagged its commodity-bloc peers as disappointing second-quarter GDP data fueled RBA rate cut speculation, undermining momentum.

From here, investors are likely to look beyond a quiet economic calendar in European trading hours to US event risk for the next major inflection point. Augusts’ ADP Employment report is on tap, with economists expecting to a 200k increase in private-sector hiring to mark an improvement over the 185k gain in the prior month. The Federal Reserve is likewise due to publish its Beige Book survey of regional economic conditions.

On balance, markets will be looking for signs that the turmoil in financial markets is spilling over into the real economy. Firm outcomes suggesting this is not the case may fuel fears that the FOMC may yet hike interest rates this month, taking away stimulus despite violent gyrations across major asset classes. Such a turn of events may re-energize the risk-off push started at the beginning of the week, sending sentiment-linked FX downward while boosting funding currencies as well as the US Dollar.

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