The US dollar remains under pressure. It is off for the third day against the yen and slipped below JPY109 for the first time in a little more than two weeks. The Nikkei struggled to cope with the foreign exchange developments, lost 2.3%, the most in a month, after gapping lower. At JPY108.50, the dollar would have given back 50% of its rally off the May 3 low near JPY105.50. Below there, the JPY107.80 is the 61.8% retracement.  

The euro is north of $1.12 after having briefly dipped below $1.11 at the start of the week. Last week’s high was set near $1.1245, and the 20-day average is found a little above $1.1250. Barring a very strong ADP report or a surprise from the ECB, the euro may head toward $1.13, which is a 38.2% retracement of the euro’s slide since key reversal from $1.16 on May 3. 

After dropping more than 1.5% over the past two sessions, sterling is stabilizing today. It is trading within yesterday’s ranges and holding above $1.44. The calm appears to be more a function of the softer dollar than positive developments in the UK. One-month implied volatility remains elevated near 20% (closed last week near 16.6%), and the put/call skew is more extreme with puts favored by 6,2% (closed last week near 5.6%).  

Although the UK’s manufacturing PMI was a bit stronger than expected yesterday, pushing back just above the 50 boom/bust level, today’s construction PMI was poor at 51.2, down from 52.0 (median expected unchanged). The construction PMI has not risen once this year, and the May reading is the second lowest in its brief history (mid-2013). The average in Q1 was 54.5.  

There are two events that will set the tone for the North American session: the ECB meeting and US jobs data. The ECB meeting features new staff forecasts. Given the firmness of oil prices, with Brent again testing the $50 a barrel level, there may be some scope to revise up the staff’s 0.1% forecast for this year. The GDP forecast of 1.4% seems less subject to change.