The dollar has started the new month on a stronger footing, largely owing to the weaker data being seen in Europe. The final manufacturing PMI data for the Eurozone was actually revised higher (owing to Germany), although Italy was weaker and this is where the market is currently focused. But it was the UK from where the stronger dollar tone was instigated, thanks to the fall in headline manufacturing PMI from 50.5 to 47.9. This caused cable to fall more than 1 big figure to below 1.5050 with a move below 1.5000 now the next focus for the markets.
As we’ve mentioned before, the scope for a correction on cable is pretty strong, just given the extent of the move seen so far making for over-sold conditions which have historically seen cable correct higher. The issue is though that the run of negative data has kept the weak fundamental backdrop at the fore of the market, so the charts have not had a chance to assert themselves. But perhaps the focus should start falling on the dollar more. The dollar has been sidelined as “currency wars” have played on many of the other majors, keeping the dollar index (DXY) relatively stable compared to the past 5 years. That could be changing, with the dollar index having risen for 4 weeks in a row now, making this the strongest 1-month appreciation since June of last year. If risk aversion asserts itself in March, in part owing to US budget issues, then this could end up being the catalyst for a sustained move lower on cable below 1.50.