02/06/2014: Chinese manufacturing data boosts indices, with the dollar bulls in early control

Market Overview

Sentiment already buoyed by Wall Street closing at record highs on Friday was given a further boost over the weekend with the announcement of better than expected Chinese manufacturing data. has helped to improve the outlook in Asian trading. In Asia, with the pick-up in sentiment, the weakness of the Japanese yen has helped the Nikkei to climb 2% climb on the day. This sentiment is also filtering through to European trading this morning, with markets trading in positive territory.

Despite the improvement in sentiment today, aside from a slight bout of Sterling strength, the general trend in forex trading shows an improvement for the dollar today. The yen is weaker but most prominently the Aussie and Kiwi dollars both falling away (which is a surprise as positive Chinese data usually leads to their strength).

The official China Manufacturing PMI improved to 50.8 beating the 506 expected and was a 5 month high. Whilst this is does not completely dispel concerns over the Chinese economy, it is a step in the right direction. It also sets us up nicely for all the manufacturing PMIs today with Eurozone throughout the morning, UK at 09:30BST (forecast 57.0) and the US ISM Manufacturing at 15:00BST (forecast 55.5)

Chart of the Day – EUR/JPY

After showing a few weeks of consistent decline, Euro/Yen is showing signs of improvement once more. The recovery is now into a third day and is eyeing a test of the reaction high at 139.36. Encouragingly, the daily RSI has already made a move above its equivalent reaction high which suggests improving momentum (which can often be a lead indicator). There has also been a Stochastics buy signal confirmed and a cross over buy signal on the MACD. A move above the reaction high at 139.36 would then re-open the neckline resistance from the top pattern at 139.85. However the sizeable nature of this resistance could subsequently hold back a further recovery. However, signs of a rally are now there for Euro/Yen. A break back below the intraday support at 138.53 would now be disappointing for the bulls.

EURJPY   02062014

EUR/USD

Friday’s rally  has given the Euro bulls some hope of a recovery moving into what should prove to be an especially volatile week for Euro/Dollar. However the key barrier to overcome is the resistance at $1.3670 which is the neckline of the big double top pattern that now dominates the daily chart. Even already overnight with Friday’s reaction high at $1.3649 there are signs that this could be a false dawn and simply yet another chance to sell. Bulls will point to the slightly higher low at $1.3597 and a band of support around $1.3620 whilst hourly intraday momentum indicators are no longer in bearish configuration. Unfortunately this will be seen as a bear rally unless the resistance at $1.3670 can be overcome and unless that is see the selling pressure will continue to dominate for a retest of the lows and $1.3560.

EURGBP   02062014

GBP/USD

The support of the rising 89 day moving average (currently $1.6689) is still holding up Cable. This comes after the big uptrend dating back to November on the daily chart was broken to seriously question the bullish outlook. However whilst the 89 day ma remains intact along with the reaction low at $1.6691 then there will be question marks over how long the correction will go on for. The key near term resistance is at $1.6800 which was old support within the previous bounce and needs to be overcome for the bulls to have a serious case that this current corrective phase of the last 3 weeks is coming towards an end. The near term resistance at $1.6780 acted as resistance on Friday and failure again could lead to some nervous bulls closing positions out. There is much that could chance the outlook though with it being PMIs day.

GBPUSD   02062014

USD/JPY

There is a battle going on between the buyers and the sellers. This is reflected in the long tails on the daily candlestick patterns of the past few days. This suggests a degree of uncertainty as an initial desire to sell is curbed by bullish forces fighting back. Furthermore the pivot-level around 102 is again being tested. This leaves Dollar/Yen at a crossroads near term. The daily momentum indicators such as the RSI are at levels where the selling pressure has re-asserted in recent weeks. So whilst 102 continues to hold back a recovery this would be seen as another chance to sell for a decline and retest of the 101.41 low. However a breach and subsequent holding above 102.14 would begin to change the outlook which would be confirmed on a move above 102.36.

USDJPY   02062014

Gold

The sell-off in gold continues as the decline reaches a fifth straight session. The initial implied downside target from the symmetrical triangle breakdown of $1240 has now been all but achieved as the correction now eyes the next lows at $1237.94 and subsequently $1231.36. Although the selling momentum is strong, the RSI is now more oversold than at any time for the past 12 months and this could begin to limit the downside. There are now two resistance levels holding back a near term recovery, around $1251 and $1260. Any recovery should be seen as a chance to sell now as the medium to longer term outlook does not look promising.

Gold   02062014

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