The announcement of a decline in the official China manufacturing PMI to a six month low from 51.0 to 50.5 has put investors on the defensive for the first day of a significant week for investors. Within the disappointing survey data for China was also declines in the production index, new orders and export orders. Although the Chinese New Year could be attributed to some of the weakness, there is still precious little to be upbeat about in the China data. The news hit risk appetite in Asia, pushing for a stronger yen which had its usual impact of pulling the Nikkei lower once more. With another 2% decline, the Japanese stock market has now lost over 10% since ten end of 2013. The poor sentiment has not really spilled over into early trading in Europe with indices finding a little support , while the Euro has also denied the bears so far. Attention will quickly turn to the series of PMI data from other key countries. The Eurozone manufacturing PMIs come in before 09:00GMT which the UK is at 09:30GMT, with the US ISM this afternoon at 15:00GMT. These data are likely to set the tone for sentiment early in the new week.
Chart of the Day – USD/CAD
There has been a series of correctional which has built up in the past couple of days which may signal a retracement in USD/CAD is ready. A bearish key one day reversal was seen on Friday (making a new intraday high only to close below the low of the previous day) which is an exhaustive signal, also we are seeing a sell signal on the RSI, in addition to crossover sell signals on the MACD and the Stochastics. Initial support comes in at 1.1027 and then 1.0991. A move back above the high from Friday at 1.1224 would abort the immediate prospect of a correction.
Friday’s move below the key support at $1.3506 looks to be the key near term development. It takes the Euro to a 10 week low against the dollar and opens the next key supports at $1.3398 and $1.3295. A bout of consolidation overnight is unwinding any oversold momentum built up on the hourly chart and is helping to renew downside potential. There is a minor rally high at $1.3509 acting as initial resistance. However with both daily and intraday technical indicators suggesting weakness, any recovery into the $1.3530/$1.3560 band should be seen as a chance to sell.
Having seen last week’s slide as a corrective move, the bearish pressure is growing with the uptrend since August now having been breached overnight. This is the first medium term negative signal on this Cable chart and we would now wait to see for other confirmation signals before the outlook is seriously changed. The intraday picture looks more concerning, with a series of lower highs in place and supports failing. The falling 21 hour moving average is acting as a good gauge for the decline now. Intraday momentum is also poor , with RSI, MACD and Stochastics all in negative configuration. Having broken $1.6394 support a retest of the key low at $1.6308 looks likely now.
The yen has been bolstered in Asian trading following the disappointing China manufacturing PMI data resulted in another flight to safety. This has pulled dollar/yen back towards a test of the last Monday’s low at 101.77 as the rate begins to set up camp towards the bottom of the trading band that has built up. Although there is no breakout yet, the bearish influences appear to be growing now, trading below falling moving averages on the intraday hourly chart. Intraday key levels come in at 102.40 and 102.94 as resistance, while the importance of 101.77 support is increasing.
The recovery throughout January looks to have rolled over now as a corrective move in the past few days has taken the price back below the 21 day moving average which had supported the rally. A sell signal on the daily MACD is the second bearish momentum signal (after the bearish divergence on the Stochastics). On the intraday chart, Friday’s spike was quickly retraced to leave resistance at $1254.90 to resume the pressure on $1237.94 support once more. That support protect the key low at $1231.36. Trading below the key intraday level at $1248.90 will continue to put pressure on the outlook.