craiglist los angeles -: Dollar Aims Higher on Manufacturing PMI Roundup, EU Summit Rethink

Dollar Aims Higher on Manufacturing PMI Roundup, EU Summit Rethink

Talking Points

• Dollar, Yen Correct Higher in Asia After Friday’s Sharp Selloff
• Euro, Pound Vulnerable as PMIs Drive Dovish Policy Expectations
• EU Summit Less of a Game-Changer Than Initial Reaction Hints

The US Dollar and Japanese Yen corrected higher in overnight trade after Friday’s sharp selloff in the wake of the EU leaders’ summit. The Euro underperformed, sliding as much as 0.5 percent against the greenback and 0.6 percent against the Japanese unit. SP 500 stock index futures are pointing lower, hinting the safe-haven currencies may extend gains in the hours ahead as kneejerk optimism gives way to a more sober outlook on what the sit-down practically achieved.

The round-up of measures unveiled at the summit does little to alter the near-term status quo. Spain will still get its banking bailout passed through the sovereign channel, which will increase the size of the government’s obligations. The empowerment of the EFSF/ESM rescue funds to recapitalizefinancial institutions directly will not be available until year-end, and only in if negotiations on the banking union proceed as planned. That leaves the region with no more of a firewall against the crisis than before for at least six months.

European Manufacturing PMI figures are in focus on the economic calendar. Final revisions of Eurozone figures are expected to confirm region-wide factory sector growth shrank at the fastest pace in 3 years. The Germany-specific gauge is expected to yield an analogous result. Manufacturing activity is also expected to fall again in Switzerland and the UK, although the rate of contraction is forecast to accelerate in the former while declining n the latter. Later in the day, the ISM Manufacturing measure is likewise expected to show deteriorating performance in June. Positive growth is due to continue here however, just at a slower pace.

Taken together, the results may remind investors of the disparity in economic growth expectations this year. Where the United States is expected to see growth accelerate to 2.2 percent in 2012 from 1.7 last year, the Eurozone slump is forecast to sink Europe as a whole into a shallow recession. That highlights the likelihood for an increasing divergence in monetary policies, particularly in a week that is expected to see the BOE expand asset purchases by another £50 billion while the ECB cuts rates to a record-low 0.75 percent. Sized up against a Federal Reserve that is in no hurry to turn any more aggressive, this may help drive the US Dollar higher anew against its European counterparts.

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

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