The USD reversed its bullish trend yesterday after the release of the ISM manufacturing index. The index dropped to 47.8 in September, down from 49.1 last month and missing the expected number of 50.4. This is the worst reading since June 2009. A number above 50 signals expansion, while a number below 50 signals contraction. There was plenty of “finger pointing” after the data release. President Trump blamed the strong dollar and high interest rates for weak US manufacturing and once again blamed the FED and FED chair Powell for their “pathetic” handling of the economy. These comments were met by ISM chair Fiore claiming the trade war and lack of global growth for the lower ISM number. He said “the longer the trade war goes, the more damage it does.”
EUR/USD moved higher after the ISM release. Short covering of positions is being given as the main reason for EUR strength. Outgoing ECB President Draghi said in a speech yesterday that “fiscal policy needs to play a more supportive role” for Euro-wide stimulus to boost investment.
After rallying yesterday on the ISM release, the pound once again is on the defensive as Prime Minister Boris Johnson will address the Conservative Party’s annual conference today. According to reports, he is expected to present a “fair and reasonable compromise” offer on Brexit to the EU. A statement from his office said, if this final proposal is not accepted, “the PM will not negotiate a delay” beyond the October 31 date for the UK to leave the EU.
After initially moving higher following the release of Tankan numbers earlier this week, JPY buying has re-emerged after the ISM release. US Treasury yields and equity markets fell as traders once again found safe haven assurance in the JPY. Traders are now placing their attention to the US NFP release on Friday.
As the crude market goes, so goes the “Loonie”. Yesterday’s oil prices, combined with the release of underwhelming growth data, kept the Canadian Dollar trading in a modest range. Growth neither expanded not contracted, coming in at a flat rate of zero. Most analysts now feel the Canadian economy probably peaked in the second quarter when it grew to a 3.7% annual rate, the highest in two years. Analysts now expect the Bank of Canada to ease policy, but expectations of a rate cut remain low for when the BOC meets on October 30.
After celebrating the 70th anniversary of the Chinese Communist party, Chinese negotiators are focused on next week’s trade negotiations that will occur in Washington, D.C. Trader sentiment regarding the talks has improved recently. Market analysts will closely monitor these talks for any positive developments that could eventually end the trade war.