London Forex Report
It was all about manufacturing prints on the data front, which turned out largely downbeat across the globe as a result of lower production and new orders, signaling still sluggish global demand although year end seasonal spending could provide some cushion to 4Q growth. The official ISM print in the US fell into contractionary territory for the first time in three years while China saw extended contraction in both official and Caixin readings. Bucking the trend was the Eurozone, with its PMI manufacturing picking up to a 19-month high in November. The region’s jobless rate also surprisingly fell to a 4-year low in October, suggesting further ECB easing could potentially be more measured. USD Index dipped steadily ahead of US data and fell further on data weakness, closing 0.37% lower at 99.79.
EUR/USD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: Euro zone manufacturing growth picked up to a 19-month high in November but the pace was still relatively modest, adding to pressure on the European Central Bank to ease policy. Traders believe that with the growth remaining modest, prices falling and manufacturing still smaller than its pre-crisis peak, it is set for the ECB to unleash further stimulus at its meeting tomorrow to ensure momentum continues to build.
Technical: While 1.0680 caps intraday upside corrections, bears target a test of 1.05 next ahead of an assault on year to date lows. Only a close above 1.07 eases immediate downside pressure.
Interbank Flows: Bids 1.0550 stops below. Offers 1.07 Stops above.
Retail Sentiment: Bullish
Trading Take-away: Sidelines
GBP/USD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: GBP got weaker following a slightly weaker-than-expected survey of the British manufacturing sector released yesterday. The PMI survey showed manufacturing growth above lackluster rates seen earlier in the year as export orders overall picked up, but it slowed last month from the rapid pace recorded in October.
Technical: With 1.50 breach achieved expect near term profit taking to meet resistance at 1.5160/80. Only a close above 1.52 eases immediate bearish bias, while below here expect retest and break of current cycle lows.
Interbank Flows: Bids 1.4950 stops below. Offers 1.52 stops above
Retail Sentiment: Bullish
Trading Take-away: Sidelines
USD/JPY
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Fundamental: USD/JPY extended its bullish momentum during Asian and European sessions on increased risk-on flows backed by equities markets, and reached daily high of 123.20s. During US session, the greenback extended its weakness across the board including the JPY, after the poor US ISM manufacturing report, showing the PMI index at 48.6 last month, versus a reading of 50.1 in October.
Technical: While 122.50/30 supports downside reactions, market structure remains bullish to test 2015 highs next. A failure at 122 opens a test of 121.40 support next ahead of pivotal 120.
Interbank Flows: Bids 122 stops below. Offers 124 stops above
Retail Sentiment: Bearish
Trading Take-away: Sidelines
EUR/JPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: Impressive Q3 Japan capex countering a weaker Japan manufacturing PMI. The currency pair retreated from 129.50 lows as positive EUR cross flows eased the decline. Focus now turns to the ADP employment data, which is usually a good guide to the official payroll numbers, as well as comments from Yellen today ahead of tomorrow pivotal ECB meeting.
Technical: While 131.30 caps upside reactions expect a sustained break below 130 to confirm a retest of 2015 lows. Only a close above 132.50 eases immediate bearish pressure.
Interbank Flows: Bids 129.50 stops below. Offers 131.00 stops above
Retail Sentiment: Bullish
Trading Take-away: Sidelines
AUD/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Fundamental: AUD rallied to multi-week highs against the US dollar partly because of the demand for carry trades. Reserve Bank of Australia (RBA) Governor Glenn Stevens spoke in this morning that past booms had ended with galloping inflation, severe monetary tightening and eventual bust. He made no mention of monetary policy but to note that the RBA left rates unchanged at two percent yesterday.
Technical: While .7170/50 remains the bid zone expect grind higher to test .7350 area next, only a close below .7150 concerns near term bullish bias.
Interbank Flows: Bids .7150 stops below. Offers .7350 stops above
Retail Sentiment: Bearish
Trading Take-away: Sidelines
USD/CAD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bullish
Fundamental: CAD slipped against a broadly softer USD after domestic growth figures showed the economy ended the third quarter on a soft note. Canada dragged out of recession in the third quarter but a deep contraction in September gross domestic product suggested weakness could stay.
Technical: Bulls have the ball while 1.3280/60 supports intraday downside. A close below 1.3220 would ease the near term bullish bias and suggest a broader correction is underway.
Interbank Flows: Bids 1.3250 stops below. Offers 1.34 stops above
Retail Sentiment: Bearish
Trading Take-away: Sidelines
