Pound Remains Lower Against Euro Despite Higher UK PMI Result

Renewed upside inflationary pressure in the United Kingdom is having little effect in foreign exchange markets, with the British pound remaining lower against the euro on Monday morning.

The UK manufacturing purchasing managers index (PMI) rebounded unexpectedly in October to 41.5, up 0.3 points from September's figure, according to Markit Economics. Economists had expected a further decline in the index to 40.1. Meanwhile, September's figure was revised up from an initial estimate of 41.0. The euro is subsequently up 0.0017 to 0.7939, at session highs following the release of the UK data at 4:30 a.m. EST.

Calyon deputy head of global FX strategy Daragh Maher wrote that the data was not that much of a surprise compared to September's print.

"After such a sharp plummet [in September from 45.9in August], it was always going to be difficult to decide whether it might extend or post a 'dead cat bounce'. That we have seen the latter rather than the former does not change the fact that this series remains at a very weak level historically and is consistent with a UK manufacturing sector mired in recession," he said in a research note.

Earlier in the overnight session, the euro zone manufacturing PMI came in slightly below expectations, with a 41.1 reading for the month of October, against expectations for a flat 41.3 reading. The EUR/GBP held steady, while the EUR/USD inexplicably rose 0.0046 to 1.2862 through the data's release. The euro is now up 0.0120 to 1.2845 against the U.S. dollar.

In the U.S., the Institute for Supply Management (ISM) manufacturing survey for the month of October will be released at 10 a.m. EST. A 41.5 reading is expected following a 43.5 reading in September.

Helaba Research's Ralf Umlauf is calling for a EUR/USD trading range of 1.2630-1.3260 for the week.

"A weak ISM index should underpin the euro today. The technical setting is also supportive. The [Moving Average Convergence / Divergence] is still heading north. If a buy signal is generated, there will be potential for a recovery. The 38.2% retracement of the downtrend since July is at 1.3750," he wrote.

The euro similarly rose to 127.54 levels from 16.90 levels against the Japanese yen prior to the 4 a.m. release of the European data. The euro dropped 0.0016 against the Canadian dollar during a session of particularly choppy trading. The cross is now down 0.0086 to 1.5351.

EUR/USD up 0.0120 to 1.2845.
EUR/CAD down 0.0086 to 1.5351.
EUR/GBP up 0.0017 to 0.7939.
EUR/JPY up 2.02 points to 127.36.

Canadian Dollar Makes Broad-Based Gains to Start Week

Despite little Canadian data in the pipeline, the loonie is faring quite well on Monday during a bout of risk appetite.

The loonie is up against all major foreign currencies. The Canadian dollar is up 0.0049 against the euro, with the cross on a gradual increase overnight. The Canadian dollar is also up 0.0081 to session highs of 0.5209 against the pound sterling, after initially turning higher at 3:30 a.m. EST.

The Canadian dollar is up 0.0128 to 1.2481 against the Australian dollar and up 1.09 points to 82.28 against the yen. Most notably, the Canadian dollar was up 0.0108 to 0.8357 against the U.S. dollar, but significantly lower from session highs of 0.8407.

At 10 a.m. EST, markets will receive the Institute for Supply Management (ISM) manufacturing survey. With the median forecast for a 41.5 reading in October, RBC Capital Markets chief FX technical analyst George Davis wrote that foreign exchange reaction on the data will depend on equities and commodities.

"A rally in equities/commodities should decrease risk aversion and send the USD lower, while weakness in equities/commodities should increase risk aversion and cause the USD to rally. Given the bearish trend reversal that took place in USD/CAD below 1.2289 last week, we are expecting the pair to attempt to test the 1.1748 support level sometime this week," he wrote in a research note.

Equity futures are pointing to a modestly weaker open, with contracts on the Dow Jones industrial average down 15 points to 9285 and S&P futures down three points to 964.30. Commodities are generally lower, with West Texas Intermediate (WTI) crude oil down $1.72 per barrel $66.09.

CAD/USD up 0.0108 to 0.8357.
CAD/EUR up 0.0049 to 0.6527.
CAD/JPY up 1.09 to 82.28.
CAD/GBP up 0.0081 to 0.5209.
CAD/AUD up 0.0128 to 1.2481.

Aussie Dollar Fading off Earlier Gains Ahead of RBA Rate Decision

The Australian dollar's gains in the North American session are leveling off ahead of the Reserve Bank of Australia's rate decision to come in afternoon Sydney trading, where the bank is expected to cut by 50 basis points to 5.50%.

Nevertheless, strategists say the currency's moves remain dominated by risk appetite.

Matthew Strauss, strategist at RBC Capital Markets said, ""Barring a major surprise similar to a month ago, FX reaction should be muted following the 50bp RBA cut and a dovish statement. The tug-of-war between risk aversion and risk appetite will continue to dominate AUD and NZD trading."

John Hardy, strategist at Saxo Bank, speculated whether the RBA cut will have an effect on the currency. "The RBA is expected to trim another 50 bps off the Cash Target. AUD has recovered very sharply of late - will tonight mark a turning point?" he said.

Tomorrow, markets will receive Australia's trade balance for September, expected to post a A$500 million surplus following August's A$1364 million surplus.

Building approvals will also be released, expected to decline 1.0% month over month, after August saw a 3.7% drop.

The euro was up 0.0086 to 1.8778 against the Australian dollar.

The Australian dollar was down 0.0073 to 0.6692 against the greenback.

The Canadian dollar was up 0.0119 to 1.2636 against the Australian dollar.

The Australian dollar was down 1.0646 to 65.9804 against the yen.

The Australian dollar was up 0.0069 to 1.1369 against the New Zealand dollar.

All data taken at 8:35 p.m. EST