The absence of further dollar gains despite the fundamental backdrop is making short-term operators more cautious after having ridden the greenback's three-week advance to the bank. Many have given up on the idea that US jobs data will succeed in ending the broad consolidative phase that began last week. China's official manufacturing PMI rose to 51.7 from 51.2 and well above market expectations and more than a two-year high. The details were constructive, with increases in new orders and new export orders. Input prices rose to 68.3 from 62.6, and this will fan ideas that the PBOC will allow the month-end pressure in the money market (such as the one-week repo rate) to carry over. The service PMI rose to 54.7 from 54.0, which is also a two-year high.

The eurozone manufacturing PMI was in line with the flash report of 53.7, though prices rose more than the preliminary report suggested (51.4 from 51.1). The tick down in Germany's reading to 54.3 from 54.4 (flash) was offset in full by the French improvement to 51.7 from 51.5. Spain offered a big positive surprise with a 54.5 reading after 53.3 in October. It was at 51.0 over the summer.

Italy also surprised on the upside. The 52.2 reading compares with 50.9 in October and expectations for 51.3 now. I t is the strongest since June. Separately, Italy reported the unemployment rate ticked lower (11.6% from 11.7%), even though it lost 30k jobs. Eurozone's October unemployment rate slipped to 9.8% from a revised 9.9% in September.

Although we recognize the likelihood that constitutional referendum losses this weekend and that it raises political uncertainty, to get to the Greek moment that some have suggested, seems considerably more complication.  Opposition to the referendum comes from across the political spectrum, including Renzi's own party, former PM Monti, and even the Economist magazine came out against it. A defeat could be a victory for the 5-Star Movement, but that is glossing over many interim steps. The Austrian election could be a different story. The anti-immigration and anti-EMU Freedom Party could capture the largely ceremonial post of the Austrian presidency. Although it tends to be passive, an activist in the office could be significant.

Attention now shifts back to the US. ISM manufacturing will be released and is expected to continue to recover. The median guesstimate from the Bloomberg survey is 52.5, which would be the highest since July. US auto sales will also be reported. A 17.7 mln unit pace, off slightly from 17.90 in October would still be a relatively strong report.

Marc Chandler​
Global head of currency strategy at BBH
Brown Brothers Harriman

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