Dollar Holds Gains After U.S. ISM Manufacturing Beats Estimates

  • Euro defensive as Catalan separatist movement adds headwind
  • Dollar-yen tracks Treasury yields amid Fed speculation

JPM's Normand Says Clients Should Be Long Dollar

The dollar sustained overnight gains as U.S. ISM manufacturing data was better than expected, climbing to its highest in more than ten years.

The Bloomberg Dollar Spot index advanced 0.4 percent, with the greenback gaining versus all of its G-10 peers. Markets were muted while awaiting employment data that will be released later in the week and as a mass shooting in Las Vegas further distracted investors. The euro fell after an unconstitutional secession vote in Catalonia sent peripheral euro-area bond yields higher.

  • The ISM manufacturing index rose to 60.8 vs est. 58.1, the highest reading since May 2004. The prices-paid component rose to 71.5 vs expectations of 63.0
  • The USD resumed a rally that began last week and stalled as month- and quarter-end considerations drove a round of profit-taking. Debate about Fed succession picked up after a report Friday that President Trump met with former Fed governor Kevin Warsh and other candidates for the position of chair of the central bank. Some of those candidates, such as Warsh, are seen to be more hawkish than current Chair Yellen, whose term expires in February. Yellen is also seen as a contender for another term as Fed chair
  • The euro declined vs most of its G-10 peers after a referendum went ahead in Catalonia despite being ruled illegal by Spain’s constitutional court. Leaders of the region have threatened to declare independence, while the EU has refused to recognize Catalan calls for recognition
  • EUR/USD was trading near 1.1745 after finding a base at 1.1730 ahead of the U.S. session; demand for EUR/GBP as cable soured helped underpin EUR, with traders awaiting fresh cues. A slew of economic data this week culminates in the monthly U.S. employment report on Friday that is expected to show slower job growth than of late, due to the impact of recent hurricanes. EUR fell back from its Friday close near 1.1814 that coincides with the 55-DMA area. The weakness has traders eyeing technical support at last week’s lows ~1.1720, while discussing targets near the 1.1662 Aug. 17 base, with potential toward the 1.1479 July 20 low
  • The pound fell to its lowest in about 2 weeks before a layer of bids under 1.3250 cushioned the drop. The Tory Party conference is underway in the U.K. as PM Theresa May seeks to bolster her flagging support within the Conservative Party
  • USD/JPY was trading near 112.60 as it steadied following a drop from its overnight peak at 113.06, a move that closely tracked Treasury yields. The latest Tankan result showed confidence among large manufacturers rose more than expected to the highest in a decade, while recent polls show that the upcoming election is very clearly a two-horse race, despite PM Abe’s improved popularity
    • USD/JPY stalled shy of last week’s highs ~113.21/26, where offers had been positioned Friday, and may find support at the Friday low 112.22 should losses extend. Risk may be for stops under the overnight low. Additional support may then emerge at 112.01 from the 200-DMA
  • USD/CAD has seen decent 2-way flow amid a narrow range as WTI declines ~2% in the session, a trader in Toronto said. Market awaits Canada jobs data due Friday, following below-estimate GDP report last week
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