Beyond Syria, US data holds the key this week
Market starts the week with a risk-on tone in response to a delay in military action in Syria by the US and an upside surprise to the official Chinese PMI at 51 from 50.3. The prospect for military action remains a significant risks, but the news over the weekend that Obama will seek Congressional approaval for military action provides a restbite from this uncertainty: Brent oil opened $2 lower, AUDUSD is higher and the CHF and the JPY are softer so far today. These moves are linkly to continue during the London trading session. Syria and politics will likely overshadow economic issues at the G20 leaders’ summit in Russia on Thursday-Friday. Back to fundamentals, after the US Labor Day holiday on Monday, the week ahead is likely to be a critical one in the run up to the September FOMC announcement. Our US economists expect some corrective softening in both manufacturing and services ISM indices, while the August payrolls report on Friday should improve to a more trend-consistent 170k gain. The data will not be enough to trigger September QE tapering, in our view. Still, the USD remains attractive relative to rate differentials, supporting the case for dollar strength against currencies where central banks are likely to remain aggressively dovish, notably JPY and CHF. The latest IMM data shows implied USD longs at only around 35% of the early-June peak in long positioning, supporting the case for rebuilding USD longs.
Read the full report: FX Daily
BNP Paribas