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Top Stories

• China, AUD PMIs all better helping Asia to rally risk
• UK PMI at 48.6 vs. 46 eyed but new orders down
• Nikkei up 0.67% Europe up 0.15%
• Oil at $100.75/bbl
• Gold ar $1587/oz.

Overnight Eco

• AUD AiG Performance of Mfg Index (DEC) 50.2 vs. 47.8
• CHF PMI Manufacturing (DEC) 50.7 vs. 44.5
• GBP PMI Manufacturing (DEC) 49.6 vs. 47.4

Event Risk on Tap

• USD Construction Spending (MoM) (NOV) expected at 0.5%
• USD ISM Manufacturing (DEC) expected at 53.2

Price Action

• USD/JPY remains beloww 77.00
• AUD/USD above 1.0300 as risk bid
• GBP/USD fails to clear 1.5600 as PMI better but internals weak
• EUR/USD above 1.3000 as GE labor demand remains strong

Risk FX caught a bid on the first full trading day of  the new year after better than expected Manufacturing PMI numbers in Asia and strong labor data from Germany lifted investor sentiment, allaying fears of an imminent global slowdown. In China the official PMI Manufacturing data printed at 50.3 returning above the boom/bust line after dipping below it in November.  In Australia the AIG PMI data was also better than expected recording a reading of  50.2 versus 47.8 the month prior.

The Australian manufacturing report was particularly positive as in managed to climb back in to expansionary territory for the first time in six months. The news helped to propel the Aussie above the 1.0300 level while EUR/USD climbed above 1.3000 boosted by better German labor data. German unemployment saw a further reduction in jobless rolls of -22k versus -9K forecast as the jobless rate fell to a 20 year low. 

Despite the turmoil in the region’s credit markets the real economy in Germany continues to operate much better than expected and so far the contagion from the financial markets has not occurred contrary to the prediction of euro shorts. The pair climbed steadily above the 1.3000 level through early morning European trade and could target the 1.3050 level later in the day if North American flows prove supportive.

In UK the PMI report was also better than expected   printing at 49.6 versus 47.4 as manufacturing activity stabilized into the last month of the year. Nevertheless, despite the better than projected headline number the sector remains mired in contraction and will likely weigh on Q4 UK GDP. Adding further concern to the outlook was the very weak new orders subcomponent which printed at 46.0 suggesting that business in Q1 may  be considerably more challenging.  Cable rose to 1.5590 on the news but so far failed to clear the 1.5600 barrier underperforming the rest of the high beta currencies.

In North America today the focus turns to the ISM Manufacturing   report due at 1500 GMT. The market anticipates an improvement to 53.3 from 52.7 and given the recent strength in the regional indices including Philly and Chicago, chances are good that the national data could surprise to the upside.  If the ISM does show a marked improvement it should help extend the risk rally that started in Asian and could push EUR/USD towards the 1.3100 level as the day proceeds.  

FX Upcoming

Currency	GMT	EST	Release	Expected	Prior
USD	15:00	10:00	Construction Spending (MoM) (NOV)	0.5%	0.8%
USD	15:00	10:00	ISM Manufacturing (DEC)	53.2	52.7

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.