Posted on: 04 February 2016, by: Pepperstone Support, category: Market Review
Dovish Fedspeak and a soft US ISM non-manufacturing print sparked a broad USD sell-off on Wednesday. Several FX pairs have broken pivotal levels.
The heart of the matter is still fragile market confidence over crude volatility and China. WTI dipped below 30.0 after DoE inventories, yet now retests $32.50. US equities reversed deep session losses around 14:20 EST. S&P closed, 50% but Nikkei futures currently point to a -2.66% decline for Thursday.
As for details regarding the recent USD-dovish developments:
Fed member Dudley, in an exclusive MNI interview, said weakening of the global economy accompanied by further appreciation of an already strong USD could also have "significant consequences" for the US economy. Mention of the USD was most noted among investors. Read more interview highlights here.
Dudley remarks overshadowed positive ADP data, which beat consensus by 10k with a print of 205k and saw 10k in positive revisions. NFP expectations of 190 are safe for now.
The ISM non-manufacturing data dipped from 55.8 to 53.5 in January, which is the lowest reading since February 2014.
Crude price action suggested again that while the low may be in place, it’s going to be choppy for a while. DoE inventories showed an outsized build again – this time 7.79mn. News explained the low in WTI near 28.80.
WTI quickly recovered reminiscent of last week’s squeeze post the same DoE report. The high of that move was $34.82, traded on Thursday, January 28. Now $32.50.
“The Bank of Japan will limit the scope of its newly introduced negative interest rate to a small portion of financial institutions' current-account deposits -- between JPY10-30tn (USD84.5-253bn),” reports Nikkei. “The amount will represent no more than a tenth or so of the total. The BOJ reckons that even a narrow application of its new monetary easing tool will spur banks to lend and invest.”
UK data surprised to the topside as well. Markit/CIPS UK services PMI inched up to 55.6 in January versus 55.4 forecasted. Coupled with the better manufacturing and construction PMIs released early this week, this brings the composite PMI to 56.1 versus 55.0 forecasted, a 6m high.