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Today’s morning London session was rather subdued, likely because traders were keeping their heads down ahead of the FOMC statement.

With that said, there were some directional movements since the Greenback was broadly lower, while the yen was nudged higher across the board.

  • U.K. Nationwide HPI m/m: 0.6% vs. 0.1% expected, 0.7% previous
  • Australian commodity prices y/y: 7.6% vs. 9.8% previous
  • Spanish manufacturing PMI: 52.9 vs. 53.1 expected, 53.4 previous
  • Italian manufacturing PMI: 51.5 vs. 53.0 expected, 53.3 previous
  • French final manufacturing PMI: 53.3 vs. no change from 53.1 expected
  • German final manufacturing PMI: 56.9 vs. no change from 57.3 expected
  • Euro Zone final manufacturing PMI: unchanged at 55.1 as expected
  • U.K. manufacturing PMI: 54.0 vs. 54.2 expected, 54.3 previous
  • U.S. ADP report coming up
  • FOMC statement later

Major Events/Reports:

U.K.’s manufacturing PMI

It’s a new month, which means another batch of U.K. PMI reports from Markit.

And earlier today, Markit released the U.K.’s July manufacturing PMI report, which revealed that the U.K.’s headline manufacturing PMI reading fell from 54.3 to a three-month low of 54.0.

This is a downside surprise because the consensus was for a weaker downtick to 54.2. The reading is also a poor start for Q3.

The details of the report were more mixed, though.

Sure, July saw “the weakest rate of expansion in UK manufacturing output in 16 months,” thanks partially to weaker new orders growth.

However, Markit noted that “The domestic market was the main focus of the slowdown in new business growth, as new export work increased at the fastest pace for six months.”

Moreover, “Employment rose for the twenty-fourth month in a row during July, with job creation sustained across the consumer, intermediate and investment goods industries.”

More importantly (for rate hike expectations), “Input cost inflation remained elevated in July, as rising commodity prices and shortages of certain raw materials drove up costs.”

Even better, “Part of the increase was passed on to clients, leading to the steepest rise in selling prices since February.”

More trade war rhetoric

Chinese Foreign Ministry Spokesperson Geng Shuang had a presser earlier. And naturally, reporters took the opportunity to ask him about the the U.S. Treasury’s plans to impose 25% tariffs on $200 billion worth of Chinese goods.

And Geng Shuang basically repeated China’s promise (or threat) that it will retaliate when he said that:

“China’s position on China-US economic and trade issues is very firm and clear and has not changed. The pressure and blackmail of the US will not work. If the US takes a further escalation move, China will inevitably counter the system and resolutely safeguard our legitimate rights and interests.”

Risk sentiment flips back to risk-off

Yesterday’s bout of risk-taking in Europe was apparently short-lived since risk aversion made a comeback today, sending the major European equity indices broadly lower.

And according to market analysts, risk aversion returned to plague Europe because earnings reports were mixed, which allowed trade-related jitters to dominate. And to that I’d add the skittishness ahead of the FOMC statement.

  • The pan-European FTSEurofirst 300 was down by 0.39% to 1,528.19
  • Germany’s DAX was down by 0.37% to 12,757.62
  • The blue-chip Euro Stoxx 50 was down by 0.41% to 3,514.95

Major Market Mover(s):

USD

The Greenback encountered broad-based selling pressure during the morning London session, forcing it to pare some of its gains.

There was no apparent reason for the dip, but since there are plenty of top-tier events for the Greenback (including an FOMC statement), it’s likely that we’re just seeing some profit-taking after yesterday’s USD rally.

EUR/USD was up by 5 pips (+0.04%) to 1.1686, GBP/USD was up by 17 pips (+0.13%) to 1.3130, NZD/USD was up by 10 pips (+0.15%) to 0.6802

JPY

The yen was the top-performing currency of the morning London session, which isn’t really saying much since the yen’s gains weren’t too impressive. Still, a win is a win.

As to why the yen was on top, well, we can probably attributed that to the risk-off vibes in Europe.

USD/JPY was down by 25 pips (-0.22%) to 111.89, EUR/JPY was down by 23 pips (-0.18%) to 130.75, CHF/JPY was down by 12 pips (-0.10% ) to112.88

Watch Out For:

  • 12:15 pm GMT: ADP’s U.S. non-farm employment change (186K expected vs. 177K previous)
  • 1:30 pm GMT: Markit’s Canadian manufacturing PMI (57.1 previous)
  • 1:45 pm GMT: Markit’s final U.S. manufacturing PMI (no change from 55.5 expected)
  • 2:00 pm GMT: ISM’s U.S. manufacturing PMI (59.3 expected vs. 60.2 previous)
  • 2:00 pm GMT: U.S. construction spending (0.3% expected, 0.4% previous)
  • 2:30 pm GMT: U.S. crude oil inventories (-2.6M expected, -6.1M previous)
  • 6:00 pm GMT: FOMC statement (no expected change in the target range for the Fed Funds rate); read Forex Gump’s Event Preview