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23/01/2014: Disappointing China flash PMI hits risk appetite


Market Overview

The announcement that Chinese manufacturing activity is moving into contraction was a blow for Asian markets overnight. The flash PMI for January fell to below the 50 mark to 49.6 which was the lowest in six months and well below the 50.4 that the consensus had estimated. The concern is that there was aso a decline in new export orders, which comes at a time at which growth is beginning to pick up once more around the world. This brings into question whether the continuing decline in Chinese growth can be held up by a global recovery. A major impact overnight was for the Aussie dollar to come under further selling pressure amid speculation that the Reserve Bank of Australia would need to cut interest rates. Earlier, AUD/USD was around 0.5% lower. The In Japan the Nikkei was around 0.8% lower, while stocks in Australia were around 1% down. Early European trading will be on the back foot, however attention will quickly move to the series of PMI announcements for the Eurozone between 08:00GMT and 09:00GMT. The US weekly jobless claims (13:30GMT) and existing home sales (15:00GMT) will be of interest this afternoon.

Chart of the Day – EUR/GBP

The apparent diverging monetary policies of the two central banks continues to put pressure on Euro/Sterling and yesterday’s strong employment data for the UK has only added to this.  The clean downside break of the previous support at £0.8226 confirms the bearish outlook and drags the rate to a new 12 month low. The hourly intraday chart shows momentum indicators in weak configuration and this early bounce should be seen as a chance to sell once more. There is a band of resistance between £0.8210 and £0.8237 which should contain any technical rally currently underway, before the downside pressure resumes. Expect a retest of yesterday’s low at £0.8163 and further weakness beyond.

EURGBP

EUR/USD

After twice failing at the key intraday resistance at $1.3580 yesterday, the Euro has spiked early this morning on the news that the French Flash PMI was slightly better than expected.  The daily chart continues to suggest that this move is (for now) nothing more than another chance to sell, trading under the shorter moving averages and still on the underside of the old 6 month uptrend (which should now act as resistance). With the German number imminent, wait for this move to play out before the medium term trend, which is lower, resumes. The resistance levels to watch for are $1.3649 and $1.3698. The support now comes in at $1.3580.

EURUSD

GBP/USD

Yesterday’s sharp move higher on the back of the strong improvement in UK unemployment pulled cable towards a test of the key 2nd January and multi-year high at $1.6603. However the move could not quite be sustained yesterday and just ran out of steam at $1.6585. The overnight consolidation has given the Sterling bulls pause for breath and early this morning they are having another go on the $1.6603 resistance. There is little market moving UK data today, so theis move may need to play out this morning before this afternoon’s US data (weekly jobless claims and existing home sales) which could pull cable lower again if they are positive. The first real support on the intraday char tis not until $1.6490.

GBPUSD

USD/JPY

After having made a sharp move higher in the early hours of trading today which put under pressure the corrective downtrend evident on the daily chart, Dollar/Yen has pulled back once more into the consolidation band. This only looks to have been a minor blip move as all technical remain neutral on the intraday hourly chart, while the trading band is now a tight 99 pip range of 103.84/104.83. This chart still needs a strong lead from somewhere in order to break this consolidation phase it has developed.

USDJPY

Gold

The downside pressure that gold was coming under that we talked about yesterday has continued overnight to drag the price below the reaction low at $1234.10. Although there has been a slight bounce since the early hours low at $1231.36 the intraday hourly chart suggests this is a decent chance to sell today. Moving averages are all turning lower, while the RSI has unwound back towards neutral and the MACD remains in a negative configuration. There is an intraday band of resistance $1237.79/$1243.70 which looks to be where the technical rally will falter before further downside for a retest of the low.

XAUUSD


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