Tuesday saw a pause in the overall price action, though the backdrop remained one of falling confidence and hence ‘risk off’. The Wednesday Asian session has seen the release of the latest Chinese PMI which shows a contractionary 48.0 from 51.0 previously. Expansionary Chinese policies lead the world out of the Credit Crisis and a slowdown there would now add a further twist to the recessionary forces that are gathering again. Stocks and oil are down, gold is up. Across in Europe there is more concern over bank bailouts and government bond yields. The risk off mood is very much alive and we continue to predict a flow out of physicals, commodity dollars and Europeans and into USDs and JPY. In fact very much in line with the forecasts from our latest Strategic Report from last weekend. Tomorrow, Thursday, brings Thanksgiving in the US and likely reduces risk appetite further.
| 0.9950?75 | 0.7550?65 | 1.3205?10 1.3130?40 | 1.3515 | 0.7730?35 0.7715 | 1.5720 1.5640 |
| 0.9715 0.9600 | 0.7422 0.7376 | 1.3060 | 1.3430 1.3383 1.3240 | 0.7695 0.7675 | 1.5485?00 |
Key: PA = Price Action | LR = Linear Regression | MA = Moving Average.
Has broken lower to restart the major bear trend. The catalyst was the weak Chinese PMI number. This adds to the recent worrying reports on the Chinese property market and associated banking risks. Australia and the AUD are double exposed through reliance on commodity sales AND long AUD positions as a liquid and high yielding proxy to the China growth story. On the charts we have broken lower but found support at 0.9755. The technical targets are at 0.9715 and 0.9600. Resistance to any short?term spike is not until 0.9950?75 and we advise lightening positions to book some profit and allow for thinning conditions ahead of the US holiday.
Much as with the AUD above the NZD dived on the release of the Chinese PMI data. However losses were limited to 0.7420 as the AUD NZD took most of the strain of the softening AUD. The current rally leaves us unchanged over the past 36 hours. On the charts we have hit the fist extension target we gave you yesterday at 0.7422. Given the risk off mood pervading the markets we expect the current bounce to stall at these levels (famous last words perhaps?!) and a start made on the leg down to the measured target at 0.7376. The major resistance is not until 0.7550?65 and we would be enthusiastic sellers if any short?term short covering rally spiked us up to that level.
Yesterday, at 1.3175, we argue for 1.3050 but ‘without any real conviction’ if only we had had more ‘courage’! The technicals had turned mildly bearish at the time but we would have had to withstand another test of the resistance at 1.3205?10. The trigger was the Chinese PMI, which weighed heavily on the AUD as an industrial commodity provider. The move is now ell underway and the target as set by the bullish 22?day average has risen to 1.3060. Resistance is now layered at 1.3130?40, 1.3160 and 1.3200. If you are short ‘well done’. Others might wait for a stalled rally to go short.
The chart shows that EUR USD has traded very narrowly for over a week now. Despite the deep fractures in the eurozone system there remains huge interest to purchase euros by sovereigns and reserve diversifiers. The US has it’s own debt and political problems that counterbalances those of dysfunctional Europe. In many ways largescale euro purchases are selffulfilling for those concerned they underpin the markets and prevent an outright rout of EU assets.
The charts show resistance at 1.3515. Both the major (daily) and minor (hourly) trends are lower and this matches our risk off view. Thus we continue to call the pair down to 1.3383 and then 1.3240, as per the Strategic Report. The trigger is the break of the 1.3430 level, which has supported 3 times already.
USD JPY is set in stone. All the action is on the JPY crosses. This is due to both the USD and JPY being seen as equal havens as sentiment deteriorates. We argue for a range of shorts on the crosses small positions in EUR JPY, GBP JPY and AUD JPY look good for at least another 1% yet and perhaps more if the yen gets the wind behind it, triggering stops in thin, holiday markets.
Trading Cable is like watching the paint dry. We have been fixed on 1.5625 for 2 days now. The UK economic backdrop continues to be very weak with politicians and central bankers priming the public and markets for a double dip recession. In the bigger picture this has to favour the still growing US and USD.
On the charts both the major and minor trends are lower and the next technical target is a good 100 points + away at 1.5487. Resistance is at 1.5640 and then 1.5720. We remain strategically short and have added to positions at these levels.
Source http://www.fxstreet.com/technical/analysis-reports/daily-strategic-report/2011-11-23.html
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