USD Shrugs Services ISM

Risk assets remain continue to push higher as China remains on vacation ahead of this evening's State of the Union speech from President Trump.The January services ISM fell to 56.7 from 58.0, posting its 2nd consecutive monthly decline (more below). USD prevails holds on to strength after last night's remarks from hawkish Cleveland Fed's Mester reviving odds of another Fed rate hike. The Aussie is the day's highest performing currency of the day thanks to an upbeat RBA assessment emerging after a surprise drop in retail sales. A new commodities trade for Premium susbcribers is to be posted later this evening.

The US ISM non-manufacturing report fell to 56.7 from 58.0, vs expectations of a 57.1 reading. It was the 2nd monthly decline, something not seen since the June-July declines. Bad news on the new orders component, which had its biggest percentage decline since August 2016. Prices paid and employment components both rose.

Aussie Rebound

AUDUSD initially fell as low as 0.7194 after the a disappointing retail sales report overnight, and it sparked jitters that the RBA would shift to a more dovish stance. Instead, the guidance in the statement was identical. Inflation and growth forecasts were trimmed but by less than feared. As a result, AUD/USD jumped to 0.7265 in what's shaping up to be an outside bullish reversal day. Australian retail sales fell 0.4% in December compared to a flat reading expected. For the quarter sales were up just 0.1% after accounting for inflation, far short of the 0.5% rise expected.

It's a rare recent win for a currency on a central bank decision day. That's in line with better sentiment in markets more broadly. The S&P 500 gained 0.7% on Monday after a flat start. Worries about China are on hold with markets there closed for the week.

USD/JPY rallied for the second day and hit 110.00, edging over the January highs. Watch for a definitive break in the day ahead or a retreat.