Busy Asian Session May Have Switched Sentiment Again

We had a busy Asian session, with a hold on RBA rates, although the drop in Chinese non-manufacturing PMI failed to allow the Aussie a relief rally. The Nikkei also had a busy session with another push higher which brought the USD/JPY along for the ride and weakened the yen broadly, although we are now reaching the next decision point. A break major resistance for a fresh high of consolidate and take profit then buy back cheaper?

European currencies bounced back pre-London open and the euro and Swiss Franc look set to gain, although the pound is currently a little overextended again and may lag slightly. Spanish Unemployment Change came in well with a print of -2.5K vs 49.3K forecast which may aid the Euro bounce.

Otherwise, we have had all of the market moving data for the day so we will likely see some positioning ahead of the bigger news later in the week.

USD% Index

Monday’s rally brought us up to trend line channel resistance which was slightly rejected. If we see a continuation of this rejection we may end up with a wide bullish flag or pennant, which would set us up nicely for some dollar strength into the new year. A return to weakness for the dollar also allows for a Santa rally for risk currencies which is typical at this time of year. It is still early day yet though so we will have to see if this position can hold. I am mildly bearish USD

USD% Index Resistance (EUR/USD support): EUR/USD 1.3531, 1.3518, 1.3500
USD% Index Support (EUR/USD support): EUR/USD 1.3595, 1.3616, 1.3650

EUR% Index

A reluctance to meaningfully turn to the downside has placed the head and shoulders theory at risk and there now seems sentiment to take the Euro higher. Seasonal flows may aid the bullishness for the Euro although the price action remains very slow and tedious. The expected rate hold from the ECB this week will likely add though the bullishness, so all in all things are looking up for the single currency at the moment. I am bullish EUR

EUR% Index Resistance: EUR/USD 1.3578, 1.3600, 1.3625, 1.3650
EUR% Index Support: EUR/USD 1.3500, 1.3476, 1.3400

JPY% Index

Another strong performance from the Nikkei overnight has pushed us slightly through the yearly lows for the index although the ability to sustain this looks questionable which could see a minor relief rally for the index. The overshoot is not too large to be considered a long time-frame double bottom, so we will have to see how the major news events this week affect the Yen. I remain bearish JPY but expect a bounce from here in the short term

JPY% Index Resistance (USD/JPY Support): USD/JPY 102.92, 103.00, 102.61
JPY% Index Support (USD/JPY Resistance): USD/JPY 103.50, 104.00, 105.00

GBP% Index

The recent break above strong resistance has failed to strongly rally as expected when long term stops are taken out which is a concern given how often pairs such as GBP/USD overshoot major levels before a reversal. That said, for the time being trend is firmly bullish, data is very bullish and upside is still expected, it’s merely that fireworks were expected once the tipping point was reached. EURGBP having broken support is also failing to do anything exciting which also adds to the concern. I am bullish GBP although we may see a correction lower before a continuation

GBP% Index Resistance: GBP/USD 1.6418, 1.6450, 1.6500
GBP% Index Support: GBP/USD 1.6300, 1.6221, 1.6161

AUD% Index

A hold on rates was pre-empted by a less than stellar Chinese non-manufacturing PMI which squashed any hopes of a quick push higher before a return to weakness. That said, the data merely pushed us back to double bottom from the recent levels, so a minor relief rally could occur, although the Aussie still looks heavy so this may be pounced on by bears sooner rather than later if a rally does get under way. I am neutral AUD

AUD% Index Resistance: AUD/USD 0.9104, 0.9138, 0.9170
AUD% Index Support: AUD/USD 0.9050, 0.9000

CHF% Index

A bounce from support for the Swiss Franc could see the index extend gains higher, helped by seasonal flows and no longer hindered by dollar strength for the time being. This makes the head and shoulder hypotheses less likely although until we actually see a break higher, it is still on the table I am bullish CHF

CHF% Index Resistance (USD/CHF support): USD/CHF 0.9038, 0.9000
CHF% Index Support (USD/CHF resistance): USD/CHF 0.9096, 0.9150, 0.9195