Forex Major Currencies Outlook (August 22, 2014)

Data from the US was stronger than expected, as the initial jobless claims came in below 300K while the flash manufacturing PMI jumped from 55.8 to 58.0. The Philly Fed manufacturing index also beat expectations and climbed from 23.9 to 28.0 instead of dipping to the estimated 19.7 reading. Existing home sales climbed from 5.03M to 5.15M while the CB leading index chalked up a higher than expected 0.9% gain. Fed Chairperson Yellen is set to testify in the Jackson Hole conference today and might lead to more dollar moves.

EUR

The euro saw a mixed set of PMI readings yet it managed to recover some of its losses in yesterday’s trading sessions. French flash manufacturing PMI came in below expectations and showed a larger contraction while its services PMI came in stronger than expected. German flash manufacturing PMI was in line with expectations but the previous reading was downgraded while its services PMI also came in better than expected. Overall, the euro zone had a weaker than expected manufacturing PMI reading of 50.8 and services PMI reading of 53.5 as expected. ECB head Draghi is set to speak at the Jackson Hole conference today and might trigger a strong reaction from the euro.

GBP

The pound suffered another wave of selling when the UK retail sales report showed weaker than expected results. For the month of July, only a 0.1% uptick was seen instead of the projected 0.4% increase. The good news though was that the June figure was upgraded from 0.1% to 0.2%. Despite that, the weak data from the UK this week was enough for traders to doubt the BOE’s credibility and question why a couple of policymakers voted to hike rates this early. There are no major reports due from the UK today.

CHF

The franc recovered a bit in yesterday’s trading sessions, as Swiss trade balance came in stronger than expected at 3.98B CHF. This was much higher than the projected 1.87B CHF surplus and the previous 1.41B CHF surplus. There are no major reports due from Switzerland today so the franc might be sensitive to risk sentiment.

JPY

The yen climbed steadily against its major counterparts in recent trading, as risk appetite continued to pick up. Japanese flash manufacturing PMI came in higher than expected as it climbed from 50.5 to 52.4, indicating a pickup in the industry’s expansion. There are no reports due from Japan today, with risk sentiment likely to be the main driver of price action for the yen pairs.

Commodity Currencies (AUD, NZD, CAD)

The comdolls had an upbeat trading day, as they were able to recover against the dollar and extend their gains to the yen. Australia’s CB leading index marked a 0.4% gain while New Zealand’s credit card spending report indicated a 4.5% increase. However, China’s HSBC flash manufacturing PMI showed a weaker than expected reading of 50.3 versus the estimated 51.5 figure. Canadian CPI and retail sales reports are up for release today and strong results could boost the Loonie higher against its counterparts.

By Kate Curtis from Trader's Way