The Euro-zone PMI business confidence data was notably weaker than expected which triggered a notable shift in sentiment as Euro-zone reservations increased.

The Euro-zone PMI business confidence data was notably weaker than expected which triggered a notable shift in sentiment as Euro-zone reservations increased. The Euro dipped sharply following the data with lows close to 1.1750.

The dollar regained ground, although gains did falter late in the session as underlying US currency sentiment remained negative. Risk appetite held steady amid expectations of loose global monetary policies. Sterling dipped sharply despite firm data with sentiment undermined by negative rhetoric on trade talks.

The French PMI manufacturing index declined to 49.0 for July from 52.4 while the services-sector index dipped sharply to 51.9 from 57.3 with both figures well below consensus forecasts and the data triggered a sharp Euro dip. The German services-sector data provided an element of relief, although the services sector also registered a significant monthly setback. The Euro-zone PMI manufacturing index overall declined marginally to 51.7 from 51.8 with the services index at 50.1 from 54.7.

The data was important in triggering notable Euro losses in early European trading and the currency continued to lose ground as pressure for a correction increased.

The US flash PMI manufacturing index strengthened to 53.6 from 50.9 previously and above consensus forecasts of 51.9. The services-sector index also strengthened to 54.8 from 50.0 previously. US existing home sales also strengthened to an annual rate of 5.86mn for July from a revised 4.70mn and well above consensus forecasts.

The data overall triggered fresh doubts as to whether the Euro-zone would be able to sustain a faster rate of recovery than the US, especially given the recent increase in Euro-zone coronavirus cases and warnings over complacency from German Chancellor Merkel. The dollar maintained a firmer tone following the releases with a further underlying correction following recent losses and the EUR/USD dipped to lows near 1.1750 before regaining some territory.

CFTC data recorded a marginal decline in long Euro positions to 197,000 in the latest week from the record 200,000 the previous week, maintaining the threat of a sharp correction. Activity was limited on Monday with markets focussed on Powell’s comments on Thursday with EUR/USD around 1.1800 as underlying dollar sentiment remained weak.

The dollar gradually regained some ground on Friday as the US currency secured wider support from the data releases. US equities were able to post slight gains at the Wall Street open. US equities posted limited net gains with USD/JPY settling around 105.80 after failing to hold above 106.00.

There was little reaction to reports that Japanese Prime Minister Abe is receiving treatment for a chronic disease as risk conditions dominated.

From the US, markets will monitor rhetoric from the Republican convention this week with a particular focus on US-China tensions. On the Democrat side, candidate Biden stated that there would be no new taxes on anyone earning less than $400,000. There was no progress on the fiscal stimulus during the weekend, but US futures and Asian markets made limited headway as blood plasma was approved as a coronavirus treatment with USD/JPY consolidating just below the 106.00.

The UK PMI manufacturing index strengthened to 55.3 for August from 53.3 the previous month while the services-sector index strengthened to 60.1 from 56.5. Both figures were above consensus forecasts and the composite output index strengthened to the highest level for over six years. New business strengthened, although there were further labour-market concerns as companies cut jobs at a faster pace. Sterling initially moved higher with the Euro dipping to fresh 5-week lows near 0.8950.

The UK currency moved lower following the latest press conference on the Brexit trade talks. EU Chief Negotiator Barnier expressed surprise and disappointment at the lack of progress and warned that talks were going backwards at some points. He again criticised the UK position and Prime Minister Johnson, again warning that a deal was needed by October at the latest, and repeated that a deal was unlikely at this stage. UK officials rejected Barnier’s criticism as tensions increased.

The CBI industrial orders index secured only a marginal recovery to -44 from -46 the previous month. Orders continued to decline for the month and export orders also remained well below the long-term average, maintaining underlying concerns over the outlook.

CFTC data recorded a long non-commercial position of 7,000 from a short position of 3,000 previously and the first long positions since the middle of April. Any fundamental setback could trigger sharp UK selling. Narrow ranges prevailed on Monday with GBP/USD close to 1.3100.

Economic Calendar

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13:30 USD Chicago Fed National Activity Index(JUL) - 4.11

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