ISM Sparks Risk Rally, Asia Quiet

ISM manufacturing numbers showing the US is on a solid footing were all that was required to spark rallies in risk trades Wednesday. AUD and NZD were tops while USD and JPY lagged. Australian trade balance is the lone Asia-Pacific event of note.

US economic data was near expectations. The ISM manufacturing sentiment survey rose to 54.1 from 53.9 but fell short of the 54.5 expected. New orders were slightly better while employment slipped. One line that may get the Feds attention was prices paid, which rose to 55.5 from 47.5 the highest since September.

The ADP employment report forecast a rise of 170K non-farm private jobs in January, slightly below the 182K consensus. An often overlooked data point that showed the US in a more positive light was January auto sales at 11m compared to 10.5m expected. It was the highest reading in 3.5 years.

The risk rally on Wednesday was probably less about news and more about the start of the month with money managers re-allocating capital into riskier assets in light of a strong January.

Short squeezes appear to be working in full force in FX as EUR/USD touched above 1.32 once again. A more clear demonstration is cable, which has rallied 12 of the past 13 sessions with the market positioned aggressively short. A 100 pip spike early in US trading had all the hallmarks of exhausted shorts rushing to the exits.

The focus will be on Australia in the upcoming session with building approval and trade balance data at 0030 GMT. Approvals are expected up 2.0% in December and the trade surplus at A$1.2B.

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