fx360

Risk FX caught a bid on the first full trading day of  the new year after better than expected Manufacturing PMI numbers in Asia and strong labor data from Germany lifted investor sentiment, allaying fears of an imminent global slowdown. In China the official PMI Manufacturing data printed at 50.3 returning above the boom/bust line after dipping below it in November.  In Australia the AIG PMI data was also better than expected recording a reading of  50.2 versus 47.8 the month prior.
The Australian manufacturing report was particularly positive as in managed to climb back in to expansionary territory for the first time in six months. The news helped to propel the Aussie above the 1.0300 level while EUR/USD climbed above 1.3000 boosted by better German labor data. German unemployment saw a further reduction in jobless rolls of -22k versus -9K forecast as the jobless rate fell to a 20 year low.
Despite the turmoil in the region’s credit markets the real economy in Germany continues to operate much better than expected and so far the contagion from the financial markets has not occurred contrary to the prediction of euro shorts. The pair climbed steadily above the 1.3000 level through early morning European trade and could target the 1.3050 level later in the day if North American flows prove supportive.

In UK the PMI report was also better than expected   printing at 49.6 versus 47.4 as manufacturing activity stabilized into the last month of the year. Nevertheless, despite the better than projected headline number the sector remains mired in contraction and will likely weigh on Q4 UK GDP. Adding further concern to the outlook was the very weak new orders subcomponent which printed at 46.0 suggesting that business in Q1 may  be considerably more challenging.  Cable rose to 1.5590 on the news but so far failed to clear the 1.5600 barrier underperforming the rest of the high beta currencies.
In North America today the focus turns to the ISM Manufacturing   report due at 1500 GMT. The market anticipates an improvement to 53.3 from 52.7 and given the recent strength in the regional indices including Philly and Chicago, chances are good that the national data could surprise to the upside.  If the ISM does show a marked improvement it should help extend the risk rally that started in Asian and could push EUR/USD towards the 1.3100 level as the day proceeds.