04:30 GBP Services PMI (50.5 exp, 51.1 prior, 49.0 to 52.0 range)
Affliated Reports:
GBP GDP m/m (Q2 Final) (0.2% exp, 0.2% prior, 0.2% to 0.2% range)
GBP GDP y/y (Q2 Final) (0.7% exp, 0.7% prior, 0.7% to 1.2% range)
This is a key indicator of economic health for the UK's economy. So far this week
the Manufacturing PMI surprised to the upside holding with a bit of a margin of safety
above the key expansion/contraction level of 50. Construction PMI however came our
lower. All these PMI are setting the scene for the BOE meeting on Thursday. Some
members of the MPC have talked about adding further Quantitative Easing to help support
the economy, and at the Conservative Party Conference there was talk of using QE to
provide loans to businesses. It has been very difficult for business to get the credit
they need from the banks, since they are not loaning it, so basically the BOE instead of
buying government bonds will be buying mid-cap and perhaps even small-cap corporate bonds.
It is not clear if the government will create bonds and sell those to the BOE and use the
proceeds to provide loans to small companies...anyway going on a tanget here, but all this
talk seems to show that further QE is on the cards, it appears to be the preferred alter-
native to government stimulus, since if the UK doesn't continue on their austerity path
the yeilds on gilts would go up...sort of stealth stimulus with QE. So a mixed message
so far with Manfacturing and Construction PMI, but Services is the largest sector of the
UK economy so this release will be important. GDP is coming out at the same time and all
analyst polled by BBerg expect 0.2%, so there is unlikely to be any deviation on this, and
since it is the final release for Q2 it is old news. The PMI figures are forward looking.
Last month's -3.2 blipped cable down about 30 pips and whipped around back above pre-
release. The pound had sold off heading into the release about 60 pips from the european
open. Unfortunately recently the rumor before the release has messed up the potential of
these trades on cable. In August a +2.1 moved cable up 50 pips in 3 minutes despite the
15 pip blip higher the minute before the release. So you can see the potential. So a
+/-2.0 is tradable and this one can even move well on smaller dev, but last month shows you
what can happen even on a big deviation, so watch the price action ahead of the release.
Also on monday there was a fat finger after the Manf. PMI which despite the good dev cable
shot down 100 pips. It had appreciated heading into the release so careful if this happens.
-If it is 52.5 or higher, GBP/USD should rally 45-75 pips
-If it is 48.5 or lower, GBP/USD should drop 45-75 pips
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0815 US ADP Employment (73k expected, 91k prior, -10k to +117k range)
Last 2 months have had just small deviations, just -14 in September and +12 in August.
Price whipped around about 10 pips but these deviations were not big enough for us to
get involved with a trade. July's +87 was more interesting, the USDJPY rallied about
25-30 pips, EURJPY and GBPJPY spiked about 30 pips but had good follow thru for an
afterspike, while the USDJPY turned around back down. The CADJPY had the best move
with a 35 pip spike and just continued another 40 pips over the next 40 minutes for a
total of 77 pips. The initial move continued for 10 minutes without any pullback.
June release had a massive -137 deviation and USDJPY dropped 50 pips in 10 minutes,
while CADJPY dropped 67 pips, EURJPY 63 pips, while GBPJPY melted 80 pips but just
continued for the next half hour reaching a total of 100 pips. The EMini S&P500 should
also follow these moves seen on the Yen Crosses, or indeed any stock indices such as
the Dow or even the Dax or FTSE. It is best to wait for a more significant deviation
on this one rather than get caught up in all the chop which happens with smaller devs.
Even medium sized deviation don't have that predictable of a track record, so it is
best to look for something like a +/-70k deviation.
If it comes out at +143k or higher, USD/JPY should rally 40 pips.
If it comes out at +3k or lower, USD/JPY should drop 40 pips.
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1000 US ISM Non-Manufacturing Index (52.8 exp, 53.3 prior, 51.3 to 55.0 range)
Last months +2.0 deviation caused a 15 blip on usdjpy, +22 on cadjpy, +25 eurjpy, and
about +30 on gbpjpy. In early September the market took a tumble on renewed concerns
about the Eurozone debt problem, which still continues. So despite the better print
the risk aversion sentiment in the market was too strong for and the small blip was
used as a selling opportunity by the market. In August a -1.2 did cause small drops
on the yen crosses but it took time to develop but if you stuck with it there was a
good amount of pips to make, 60 pips on eurjpy over a half hour, and 50 pips on cadjpy.
In July there was just a -0.2 on this one and not big enough deviation to trigger any
sort of trade. The USDJPY actually sold off about 20 pips which isn't such a bad
response. June's release had a small upward deviation of just +0.6, but the USDJPY
did move up some 20 pips over 3 minutes, it was not exactly a spike trade, but was
quite whippy move which resolved upward...price did continue to to trend upward over
the 30 min for a total of 40 pips, despite a quick blip back down to the pre-release
price 7 minutes after the release. Still this is generally not a deviation that we
would get in on. Anything above the 50 level is considered expansion of the economy
and below 50 is considered contract, so for the market it is good to see this one
maintain a moderately comfortable margin above this key 50 pivot line for this indicator.
On Monday the ISM Manufacturing did managed to stay above 50 and came out higher than
expected. Watch the Employment sub-component for clues to friday's NFP release.
if 55.0 or higher then buy USDJPY for a potential 20-35 pip move
if 50.0 or lower then sell USDJPY for a potential 20-35 pip move
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