US: Divergence between the industrial and the services sectors continues – TD Securities

Analysts at TD Securities, notes that the August ISM non-manufacturing index continued to highlight the divergence between the industrial and the services sectors, as so far the woes from the trade war and global weakness affecting manufacturing production appear not to have spilled over into the rest of the economy.

Key Quotes

“In the details, the index exceeded expectations, jumping to a six-month high at 56.4 from 53.7 before (mkt 56.4). Most of the key components were strong, with new orders (to 60.3 from 54.1) and business activity (to 61.5 from 53.1) leading the way.”
“The only negative read in an otherwise strong report was the decline in the employment component to its lowest level since March 2017 at 53.1 from a strong 56.2, which would suggest an slowdown ahead in service-sector employment which is not surprising at this stage of the cycle.”

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EUR/USD Recovers, GBP/USD Rallies, USD/CAD Eyes BoC Risk - US Market Open

MARKET DEVELOPMENT –EUR/USD Recovers, GBP/USD Rallies, USD/CAD Eyes BoC Risk

DailyFX 2019 FX Trading Forecasts

Equities: Global equities are notably firmer following the announcement by Hong Kong’s Carrie Lam that the controversial extradition bill that sparked protests for 3-months will be withdrawn. Consequently, this has spurred risk-on sentiment with European and US equity futures trading higher throughout today’s session. That said, following yesterday’s surprise contraction in the US ISM report, eyes will be on key tier 1 US data during the weak, particularly as the weak ISM employment subcomponent raises concerns over this weeks ADP and NFP reports.
GBP: The first day back to parliament for PM Johnson kicked off with defeat in the House of Commons after a cross-party motion to delay the UK’s departure from the EU until January 31st, 2020 had been passed. In response, PM Johnson called for a snap-election to take place on October 15th, however, with opposition parties viewing this as a way to push forward with a no-deal Brexit, the PM is expected to struggle to achieve the 2/3 of MPs needed to support him until the delay bill is passed. As such, while this has seen a no-deal Brexit threat edge lower, thus sparking a short squeeze in GBP/USD, the road ahead remains an uncertain one for the Pound.
EUR: Better than expected Eurozone services PMI data has helped the Euro recover, which in turn has reclaimed the 1.1000 handle. Alongside this, the Euro had been further boosted by the ECB President nominee, Christine Lagarde, who stated that the ECB must be mindful with regard to negative effects of unconvential polices, suggesting that the next ECB President may not be major advocate of significant policy stimulus.
CAD: The Canadian Dollar has traded in subdued fashion despite the 2% surge in Brent crude futures. Market participants await the BoC monetary policy, where interest rates are likely to be left unchanged. However, focus will be on whether the central bank sets the tone for a potential move at the October monetary policy report where money markets are pricing in a 66% chance of a 25bps cut. (full analysis)







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When are the German Factory Orders and how could they affect EUR/USD?

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German Factory Orders overview

The German data scheduled for release at 06:00 GMT is expected to show the Factory Orders dropped at a seasonally adjusted 1.3% year-on-year in July, following a 3.36% slide in June.

Manufacturing PMI hit 7-year low in July

The headline IHS Markit/BME Germany Manufacturing PMI – a single-figure snapshot of the performance of the manufacturing economy – sank to a seven-year low of 43.2 in July, mainly due to the steepest drop in new export orders since 2009.
Put simply, German manufacturers went into full retrenchment mode in July. Therefore, the Factory Orders are unlikely to surprise with a positive print.

Impact on EUR/USD

That the German economy is experiencing a slowdown is generally accepted by now and priced to a greater extent. Further, EUR/USD's daily chart is flashing a short-term bullish reversal, as discussed earlier today.
Also, investors are buying risk in response to new optimism on a possible US-China trade dispute resolution and the fading prospect of a hard Brexit.
Put simply, a bigger-than-expected drop in the German Factory Orders is needed to put the EUR under pressure.
The common currency will likely rise toward the resistance at 1.1064, as suggested by the daily chart if the Factory Orders print in line with the estimates or blow past expectations.

About German Factory Orders

The Factory orders released by the Deutsche Bundesbank is an indicator that includes shipments, inventories, and new and unfilled orders. An increase in the factory order total may indicate an expansion in the German economy and could be an inflationary factor. It is worth noting that the German Factory barely influences, either positively or negatively, the total Eurozone GDP. A high reading is positive (or bullish) for the EUR, while a low reading is negative.

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