1-2 punch of strong ADP & GDP numbers has put the USD on the offensive

Many pairs traded in fairly tight ranges overnight ahead of the deluge of important data today. One notable mover was the Japanese Yen which was stronger overnight. The JPY ground out small gains against the Euro and Greenback as well as some larger gains against the British Pound and Australian Dollar. Uncertain sentiment, which supported safer assets, led the move. The Swiss franc also benefited from this theme, advancing similarly against the currencies above, though trading sideways against the JPY.

The Sterling and the Aussie were the big stragglers through the overnight session as demand for both has been soft recently. The Australian unit has legged lower again this week following yesterday’s speech from Reserve Bank of Australia head Glenn Stevens, during which he noted that there was room for both interest rates and the local currency to decrease further. The AUD has been one of the worst performing G10 currencies in recent months as talk of tapering from the US Federal Reserve took the wind out of the sails of carry currencies like the Australian Dollar.

Turning to the Sterling, despite some constructive PMI, CPI, Retail Sales, and employment data recently, the GBP continues to underperform. The action seems to be on the back of dovish Bank of England comments last month, where freshly minted governor Mark Carney stated that expectations interest Rates in the UK would be rising soon were “unwarranted”. In overnight trading a soft Cable and stable EURUSD led the EURGBP cross to highs not seen since March 2013 as the Common Currency outperformed the Pound.

In the equities world, the Asian session weak as Japan’s Nikkei & Topix both contracted to the tune of 1.45%, a stronger Yen hurting the bottom line of exporters. The Hang Seng & New Zealand NZX both also retreated, though only about -0.3%, while the Australia’s ASX squeaked out a tiny gain of +0.09%. In Europe indices were mixed, the German DAX and European Stoxx50 posting small losses. This was in contrast to the British FTSE which advanced following better than expected earnings results from alcoholic beverage maker Diageo and the utilities provider Centrica.

The data free for all began early this morning as the American session moves into full swing. First up was the ADP Employment report, often used as a leading indicator for this Friday’s critical Non-Farms Payroll number. The result was a gain of 200k, besting the consensus forecast of 180k according to Reuters. This was followed up with 15 minutes later with Advance GDP, which printed a +1.7% versus expectations of +1.1% according to Bloomberg. The surprise Q2 result, which was largely expected to be soft due to the government Sequester, comes on the back of unexpected growth in inventories. This morning’s data is an encouraging sign that the American economy may be resilient enough to absorb any drag associated with reduced stimulus.

Also released this morning was Canadian GDP numbers for the month of May, which in line with expectations, showed economic expansion of +0.2%. The result marks the fifth straight positive outcome, the longest continuous phase of growth since 2010. Looking into the numbers, retail spending outweighed a drop in output from hydrocarbon producers and drove the end number.

The response to this morning’s data in currencies has been as expected. The 1-2 punch of strong ADP employment and GDP numbers has put the USD on the offensive. The Big Dollar picking up ground against all major currencies as bulls come out of the woodwork ahead of this afternoon’s Fed Announcement.