UK Service PMI and the US ADP to possibly give us a clue about the upcoming non farm payrolls

Today we see the release of the GDP Q2 final estimate where the markets are expecting an unchanged estimate of 0.2%; we will also see the release of services PMI data for September which is expected to show a reading of 50.5. Traders are seeing the sterling market trade with a ‘shortish’ edge going into tomorrow’s BoE meeting. A failure to extend existing stimulus or QE levels could see sterling rally though many in the market see November as a more realistic month where this could be announced after the inflation report is released.

The Dow made an impressive rally into the close last night, taking the euro higher as the market covered short risk trades. The market sighted a report in the Financial Times that EU ministers are discussing options to aid European banks. Into the Asian session and with Moody’s downgrade of Italy by three notches putting them in line with the S&P, the euro gave up its gains to post an overnight low of 1.3258. Traders expect more European headline trading today as we head into the ECB meeting tomorrow with a small chance of a 0.25% rate cut.

After the end-of-month rebalancing inspired rally last week taking us just shy of the 77.30 level, the market seems back to normal using the yen as the funding currency in the ‘ risk off environment ‘ which will no doubt test the resolve of the BoJ. This week we have seen calls from Sony that action on a stronger yen is needed. With EUR/JPY seemingly heading towards the level of 100.00 and the timing of a meeting between Japanese economic minister Motohisa Furukawa and Fed Chairman Ben Bernanke this week, the topic of yen’s strength could come to testing the BoJ’s patience.