USD falls back as manufacturing data misses

Summary:

• USD pulls back at the start of the month

• Trade weighted index reached YTD peak yesterday

• ISM manufacturing beats forecasts; employment index rises

The last few days of October saw a fairly strong push higher in the US dollar, with the buck seemingly benefitting from some positive month-end flows. Now November has begun however, there’s been some notable selling with the greenback lower on the day against all of its peers. The largest gains in G10 space can be seen in the antipodean currencies with the Aussie and Kiwi up by 1.7% and 1.8% respectively but there’s also large gains seen against the US dollar of more than 1% for the Swedish Krona, Pound and Mexican Peso.

The US dollar is coming under pressure today after a good recent run, with the AUD and NZD are the two biggest gainers against the buck. Source: xStation

In terms of data this afternoon there’s been 2 releases of note from the US with the latest weekly employment numbers and the ISM manufacturing PMI. The initial jobless claims for the past week came in at 214k, pretty much bang inline with the 213k while the prior was revised marginally higher by 1k to 216k. This release has become something of a non-event lately with everyone well aware that the US labor market is tight and the reading remains close to its lowest level in several decades.

More important for the US dollar, is the latest manufacturing figures with the ISM PMI for October coming in below forecasts. A print of 57.7 was below the 59.0 expected and marks a fair size drop from the 59.8 seen previously. Also of note from the report was the employment index which dropped to 56.8 from 58.8 prior and new orders which fell to 57.4 from 61.8 previously. The drop in new orders could be particularly significant as it is down form 65.1 two months ago and has seen a pretty sharp decline of late.   

The ISM manufacturing survey fell more than expected last month and the sharp drop in recent months in new orders could be an early warning sign of more weakness to come. Source: Institute for Supply Management

Looking at the US dollar index we can observe that the buck has dropped sharply today, with the current D1 candle set to engulf the past 3 days of gains in one fell swoop. The market hit a 2018 peak yesterday just below the 97.00 handle but has dropped back over 80 pips today and is looking set for a heavy day of losses. Tomorrow’s NFP is the big event for the buck going forward and if there’s anything softness in the release then there could well be further to fall for the greenback ahead of next Tuesday’s Midterm elections where there appears to be a good chance that the GOP will lose one of the houses.

The USD index is set for a large daily decline and the market has pulled back aggressively after hitting its highest level of the year just yesterday. Source: xStation