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German factory orders declined 1.1% for July after a revised 0.3% decline the previous month and slightly weaker than consensus forecasts. There were expectations of further strong EU fiscal support packages to curb the impact of surging energy prices and government yields moved sharply higher on the day.

The Euro posted net gains after Tuesday’s European open, but was unable to make a challenge on party with a peak just above 0.9985. The Euro lost ground steadily into the US open amid underlying fears over the Euro-Zone outlook and tested the 0.9900 area.

The final US PMI services index for August was revised slightly lower to 43.7 from the flash reading of 44.3 and following a 47.3 reading for July.

In contrast, the ISM non-manufacturing index strengthened slightly to 56.9 for August from 56.7 the previous month and above consensus forecasts of 55.1. Business activity and new orders increased at a slightly faster rate while there was a marginal increase in employment for the month. There was a slight easing of supply-side difficulties while there was only a slight easing of inflation pressures for the month which suggested stronger inflation pressures within the services sector.

The stronger than expected ISM data triggered fresh dollar buying with the Euro dipping to fresh 19-year lows below 0.9870 before rallying back above the 0.9900 level.

The dollar maintained a very firm tone on Wednesday and traded at 20-year highs and the Euro traded at 19-year lows just below 0.9900.




Treasuries remained on the defensive ahead of the New York open with yields moving higher. The stronger than expected US ISM data triggered another round of losses in Treasuries with the 10-year yield increasing to 10-week highs around 3.35%. The increase in yields underpinned the dollar and triggered a further round of yen selling as yield spreads undermined the Japanese currency. The dollar surged to fresh 24-year highs close to the 143.00 level.

Japanese Finance Minister Suzuki stated that recent forex moves have been somewhat rapid while chief cabinet secretary Matsuno stated that the government was ready to take action if necessary. The rhetoric, however, failed to have any significant impact with markets ignoring the rhetoric and considering that there would be no actual intervention to break the trend. In this context overall yen selling continued on yield grounds.

Richmond Fed President Barkin stated that his bias is towards raising interest rates more quickly rather than more slowly, maintaining the hawkish rhetoric. US yields increased further and the dollar surged again to fresh 24-year highs near 144.40 before a limited correction with the Euro near 142.50.




The UK PMI construction index recovered slightly to 49.2 for August from 48.9 previously and above expectations of 48.0, although it remained in contraction. New orders increased at the slowest rate for over two years while optimism remained notably weak while there was a significant easing of cost pressures for the month.

After the European open, there were further reports that the government would announce a package to freeze household energy bills close to current levels for 18 months with government-backed loans for energy companies which would be used to subsidise prices. There were also reports that there would be similar support for businesses, although the mechanics would be more complicated. The total cost is likely to be at least £100bn.

Sterling attempted to rally amid hopes that avoiding a major surge in short-term energy prices would help underpin the economy and lessen the risk of a deep recession.

UK yields moved sharply higher on the day with the 10-year yields jumping to 10-year highs near 3.15%.

The UK currency peaked just above 1.1600 against the dollar before correcting lower with wider dollar strength leading to a fresh test of support at 1.1500

The Euro retreated to 0.8570 before a recovery to 0.8590 amid volatility in yields. Dollar strength pushed the Pound back below 1.1500 against the dollar on Wednesday with rhetoric from Bank of England Governor Bailey and UK bond yields also key elements during the day.




Higher global yields had an important impact in undermining demand for the Swiss franc during Tuesday as US and German yields moved higher. The Euro secured a net advance to 0.9760 while the dollar posted a net advance to 0.9850, although there was still a reluctance to sell the franc aggressively.

Risk appetite dipped lower towards the European close which pulled the franc from intra-day lows. The franc resisted further selling pressure on Wednesday despite higher US yields with the dollar struggling to hold above 0.9850 as global equities drifted lower again.


Technical Levels 




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