01/12/2014: Dollar strengthens as disappointing Chinese manufacturing data puts the pressure on global growth again

Market Overview

With the US back from Thanksgiving holiday this week, volumes should begin to return to normal. However news out over the weekend has not been especially favourable and investors have started the week on the back foot. The official Chinese manufacturing PMI reading disappointed the market with 50.3 coming in lower than the 50.5 expected, and this has put pressure on Asian markets across the region. However, one notable exception is the Nikkei which has gained 0.8% helped higher by a weaker yen (Japan is also a large importer of oil, which continues to fall). This means that the European markets have opened under a little bit of pressure today.

In forex trading, the dollar is showing mild strength against the major currencies, however the Aussie and Kiwi dollars are under the most pressure following on from the weaker Chinese data. The commodity prices have also been driven lower today. The oil price remains under significant downside pressure as the momentum trade built up over the last few weeks, which was given extra impetus following the OPEC decision not to cut production level, shows little sign of stopping yet. Gold has also been hit hard following the result of the referendum vote in Switzerland which gave a resounding victory for the “No” camp.] which means that the Swiss National Bank will not be required to purchase significant amounts of gold.

The first day of the month is manufacturing PMI day and this will be the main focus throughout the day for traders. China has obviously got the day off on the wrong foot and next up are the Eurozone PMIs which are released throughout the early European session. He UK manufacturing PMI is released at 09:30GMT and is expected to show a very slight dip to 53.1 (from 53.2). Then into the afternoon, theUS ISM Manufacturing PMI is released at 15:00GMT, with the number expected to drop to 58.0 from a strong 59.0.

Chart of the Day – USD/CHF

It does not appear as though the result of the Swiss Gold referendum has impacted (i.e. weakened) the Swissy in any obvious way. However, Dollar/Swissy continues to trade as an almost equal and opposite chart to Euro/Dollar. The strong uptrend since mid-August continues as the key indicator pulling the rate higher, along with a series of bullish moving averages. The momentum signals remain in bullish configuration and show further upside potential. Having moved through a 4 day corrective run, it seems as through the bulls are back in control again as a series of higher lows is now being left following the key near term low in place at 0.9593. This now means that a reaction low has been left at 0.9618 as the hourly moving averages turn up in bullish sequence and the outlook is improving again. Look to use any weakness into the 0.9617/0.9647 band as a chance to buy. The bulls would be disappointed to lose the support at 0.9617 but the resumption of the uptrend remains intact until a beach of 0.9593.

USDCHF   01122014

EUR/USD

The euro continues to conform to the downtrend that has dragged the price lower over the past 3 months. Furthermore, momentum indicators do not suggest that this sequence will be set to change any time soon. The sideways trading band between $1.2357 and $1.2600 as shown on the intraday hourly chart continues, however the bulls have lost the impetus for a rally within the range. Having ended a series of higher lows following the breach of $1.2440, it appears as though there is a sequence of lower highs that is now forming. This all as the pressure is growing towards a test of the next support at $1.2400. The initial peaks have formed at $1.2470 and $1.2490, with second of which is just under the pivot level around $1.2500. Intraday momentum indicators show the loss of momentum and the downside pressure is growing. Below $1.2400 support is the key low at $1.2357.

EURUSD   01122014

GBP/USD

With the intraday base pattern well and truly aborted now, the bears are ready to break Cable down to another new multi-month low. The support at $1.5588 has just held on overnight (the low in Asian trading has been $1.5585) but there is little reason to suggest it will not come under continued threat. The daily chart shows a bearish set of momentum indicators with downside potential. The next low below $1.5585 is a low from August 2013 at $1.5425. The intraday hourly chart shows a well-defined downtrend in the past few days that is using the falling 21 hour moving average as the basis of support and where resistance is being found consistently at lower highs, the latest peak coming early today with $1.5657. Using any bounce as a chance to sell continues to be a viable strategy.

GBPUSD   01122014

USD/JPY

With the bulls firmly back in control on Friday the rate has once more begun to push back towards resistance. An initial poke to a new multi-year high above 119 has just been reined in but there is little reason to believe the bulls will not remain in control for further upside. After a cautious few days, the daily momentum indicators are once more ready for renewed upside once more. The 161.8% Fibonacci projection of 119.07 remains a barrier to upside, however once we see a confirmed breach then it should re-open to the upside. However, maybe it would be wise to just wait for that confirmed break as the intraday hourly momentum indicators are perhaps a little toppy near term. This could mean that the bulls may be able to get an entry at a lower level. There is a decent band of near term support at 118.33/118.57. The key near/medium term support comes in at 117.22.

USDJPY   01122014

Gold

The volatility could be quite high in th gold price over the coming hours as the market settles down after the fallout of the Swiss Gold initiative referendum. The resounding “No” vote means that the SNB will not be required to engage in a series of measures that would have potentially sent gold significantly higher. As the uncertainty of this election is removed the price initially dropped around $25 in a couple of hours but is looking to retrace some of that initial weakness. However as the price settles it looks as though the bears are back in control. The break of the key picot level at $1180.70 now puts the pressure bck to the downside. Friday had already hinted at the market’s acceptance of a “no” vote as the price fell sharply. There could easily now be further weakness back towards the key low at $1131.85 as technical indicators deteriorate and have renewed downside potential. Using the volatility this morning to sell into a bounce may need to have a generous stop loss but it certainly looks now as though the bears are back in control on gold.

Gold   01122014

WTI Oil

The selling pressure that drove oil lower in such a precipitous manner on Thursday has continued into the new week. This leaves us with an interesting scenario in the early part of the week. The momentum is clearly with the downside currently. However the technical momentum indicators suggest the momentum is deeply oversold, with the RSI down at 19. The next key support comes in at $64.25 but analysts are queuing up to put bearish targets on oil now. The “trend is your friend” for a reason and just now the trend is showing significant weakness. However the technical indicators look very stretched near term. The volatility that drove WTI lower on Thursday could also snap back with a near term technical rally. The resistance arguably does not come in until the previous reaction low at $73.25, and the chances of some of the oversold momentum unwinding in the next few days are growing. (I apologise for the chart as I am having some price feed issues with WTI from Reuters, I am told that they will hopefully should be resolved soon.)

WTI   01122014

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