Australia AugustPMI jumped to its highest level in 15 months, with activity expanding in the sector after a long slump. The PMI  jumped 7.2 points to 51.7. Measures of production and new orders both surged to above 50, adding to signs that the economy is recovering.

No effect on AUDUSD which remains bid for now.

Others economic data out today is the balance of payments and building approvals at 2130 GMT and then the RBA rate decision and statement at 0430 GMT.

Now this is a good idea in my view from Matthew Goldstein over at Reuters. If private equity firms want to buy something, then stump up 50% cash up-front. The same should apply to private individual’s investment properties and share portfolios.

Back to more mundane matters. We have mentioned over the last few days that there are some large-ish sell orders at .8860. Now my interbank contacts tell me that there is more interest closer to the market; decent offers around .8820, of the profit-taking variety, and solid bids around .8770, should ensure a session or two of range trading.

As to whether this is logical or not, we will not investigate, but the fact of the matter is that many traders are looking to the Shanghai bourse for global sentiment clues.

As we wrote last week, one analyst in the Chinese government gave a rare and worrying insight into how much of new bank lending was being used for the buying of stocks and property rather than for traditional investment purposes. This obviously had the effect of inflating prices but with this type of lending now being restricted, there is less new money to flow into the market and therefore we may see more of the 7% drops in the stock market which we saw yesterday.

It seems sometimes that the entire financial market is one great big bubble which has existed and thrived for years on the creation of new credit rather than new productivity. We saw last year that there were huge sums of money which couldn’t be repaid and were ‘lost’. Now after the massive global intervention and stimulus spending, we are back to the same old routine. Unfortunately, once the money printing and stimulus spending is over, we will return to the same if not a worse predicament.

The RBA will almost certainly leave rates on hold when their decision is announced later this morning. They are expected to say that they are closely monitoring all economic data and to adjust their language to allow for upcoming rate rises. Australian GDP figures later in the week will hasten any rise if they continue to show recovering growth.

Hopefully this means that ultra choppy markets are now behind us. I found it virtually impossible to sit on good positions but really easy to stick with bad ones and I hope this is one trend which is about to change.

AUD/USD might be the pair to watch during this session. The stops above .8500 are said to be very large and we suspect (but have no definitive confirmation) that there is a big option barrier at the figure.

Good luck today.

• Canadian GDP falls 3.4% in Q2, worse than expected
• New York Fed’s Dudley: Fed’s balance sheet likely to reach $2.5 trln; Fed unlikely to curtail asset purchases until full amounts acquired; Fed not monetizing debt; no desire to lose grip on inflation
• Chicago PMI surges to 50 in August from 43.4 in July; stronger than expected
• NY NAPM rises to 55.3 in August from 48.3 in July
• Hong Kong purchasing managers index rises to 52.8 from 49.9 in July
• ECB’s Nowotny: Too early to declare end of tough times
• Merkle/Sarkozy: Focus on banks at G20
• S&P 500 index falls 0.85%; 10-year note closes at 3.40%

Month-end interest to sell dollars dominated markets in thin trade today. Asset managers needed to trim dollar exposures which grew with the market capitalization of their funds during the month of August. It is counter-intuitive, but a good month for stocks leads to a bad month-end for the dollar, and vice-versa.

EUR/USD began to rally strongly about an hour before the month-end fixing at 15:00 GMT and continued until the the minutes just ahead of 15:00 when the market found itself a shade long. From 1.4367 highs we dipped to about 1.43505 at the fixing. Cable brushed 1.6300 in the month-end rally while USD/JPY dipped toward the 92.60s again.

Commodities traded weakly today but signs of economic life from the US helped boost commodity currencies from their overnight lows. News that China may default on commodities contracts spooked the markets early, but month-end helped underpin both AUD and CAD. AUD/USD ends at 0.8445 and USD/CAD at 1.0945.

EUR/USD is giving ground in afternoon trade, falling back to the low 1.43-teens, the point from which it broke out to the topside earlier in the day. 1.4314 had capped bounces until the demand for EUR/USD at month-end sent the pair soaring in the run-up to the month-end fixing at 15:00 GMT.

Look for a modest shake-out to the downside if EUR/USD dips below 1.4310 this afternoon.

EUR/JPY continues to recover in slow, methodical fashion this afternoon, boosted in part my related markets like stocks and commodities climbing off their lows. The cross tried the downside early in the US trading session but put in a higher low at the 132.70 level, well above the 132.15 levels reached in Asia overnight. Retracements have pushed the cross into the 133.35/40 area. Near-term, bears will nervously eye the area of resistance between 133.57 (the 50% retracement of the 135.00/132.15 drop) and 133.85, the high overnight in Asia.

So here we sit. Risk should be shunned but it’s really holding up rather well, from a currency perspective, given the pullback in share prices and the slide in commodities.

EUR/USD trades closer to the top of recent ranges than the bottom while commodity currencies like AUD and CAD have recovered earloer losses. Who would have guessed?

Next up for the market is the ISM data tomorrow morning. Regional PMIs and Fed surveys point to a rebound above the 50 level.

European unemplyment data, German retail sales and PMIs are set for release on Tuesday as well. Markets should be deeper with UK traders returning from holiday.

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