Dollar Hopes Downgraded After PMI

The US dollar slumped after a soft Chicago PMI. The Swiss franc was the top performer while the US dollar lagged. The official Chinese manufacturing PMI is the highlight of Asia-Pacific trading as markets shift into data overdrive for the remainder of the week. New Premium trades and charts on EURUSD, GBPUSD and USDJPY were issued ahead of Wednesday's UK PMI, US ADP, FOMC decision and Thursday's ECB decision. All these are found in the latest Premium Insights

It's growing more difficult to ignore the soft trend in US economic data and the Fed will no doubt take notice in Wednesday's FOMC decision. The latest bad news was in the Chicago PMI as it fell to 49.0 compared to 52.5 expected. It was the lowest reading for the manufacturing survey since 2009.

As Ashraf noted earlier today, the Fed may push back expectations for tapering QE. As a result, the US dollar broadly softened allowing the euro to jump as high as 1.3186 and cable to a two-month high of 1.5569.

Housing and the consumer remain bright spots in the US economy as the S&P/Case-Shiller house price index slightly beat expectations with home prices up 9.3% year-over-year. Consumer confidence rose to 68.1 compared to the 61.0 consensus.

There were remarkable signs of divergence in markets as April ended. US ten-year Treasury yields fell to the lowest of the year while the S&P 500 closed at an all-time high. The divergence is possible because of Fed buying but at some point it will break down.

The S&P 500 has slumped in the month of May for three consecutive years and it's a historically weak month. We warn, however, that doesn't hold true for the first trading day of the month. It has been a positive day in 7 of the past 9 years. In the two years where it closed lower, there were significant intraday gains at some point.

A busy final three days of the week begins in China with the April manufacturing PMI. The consensus call is for a slight decline to 50.7 from 50.9. Several other lower-tier indicators are also on the schedule but markets will be hesitant ahead of the more important numbers later in the day.