London Forex Report: China PMI Miss, Risk Remains Buoyed By BoJ
Littlefish FX | Feb 01, 2016 05:51AM ET
London Forex Report: China PMI miss, risk remains buoyed by BoJ easing action Friday. China official Manufacturing PMI for January slipped to 49.4 (previous reading of 49.7), suggesting increasing difficulties faced by the manufacturing industry. Compared to the average reading of 49.8 in Q4-2015, the January mfg PMI of 49.4 reflects still weak growth momentum in the beginning of 2016. However, with the Chinese New Year holiday coming, growth should remain soft with the manufacturing industry facing rising pressure. Muted demand, destocking and excess capacity will continue to weigh on the manufacturing sector. The weak growth momentum justifies continued policy easing, especially fiscal policy support, to prevent a further slowdown and revive investment growth. The restructuring toward a more service-led economy, although slightly slowing down, will continue to take place.
EUR/USD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: Euro dropped more than 1 percent Friday. However, the euro managed to hold above 1.0800 handle. The euro was pressured to the downside as risk appetite has climbed due to the Bank of Japan‘s new policy of negative interest rates.
Technical: Trading mid to lower range, a sustained breach of 1.08 bids opens 1.07 range lows. A breach of 1.0990 trend resistance opens a broader 1.1240 symmetry corrective objective.
Interbank Flows: Bids 1.08 stops below. Offers 1.0950 Stops above.
Retail Sentiment: Bullish
Trading Take-away: Play the range, buy dips to 1.07 sell rallies to 1.10
GBP/USD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: GBP was just briefly supported by the news of BoJ’s easing policy and then dropped from around 1.4400 to the intraday low of 1.4147, sank almost 1.8 percent. Traders are starting to speculate that BoE may cut rate by the end of 2016 hence putting pressure on sterling. GBP/USD has fallen more than 6 percent since November 2015 on the back of diminishing expectations for higher UK interest rate.
Technical: Bias remains to the downside with primary resistance at 1.4250/80 and then 1.4380, a breach of 1.42 opens a retest of last weeks seven year lows. Over 1.4450 eases immediate downside pressure and sets up a broader correction.
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Interbank Flows: Bids 1.42 below. Offers 1.4450 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 rocketed 2.4 percent after the release of a negative interest rate, reaching its highest since December 18. The policy divergence between the Fed and BoJ has become more heightened since BoJ moved to negative interest rates, causing many to initiate long term bearish views on the JPY.
Technical: 121.66 is initial resistance an upside breach here opens a move to test 123.64 next, bulls have the ball while 120 supports intraday downside reactions.
Interbank Flows: Bids 117.50 stops below. Offers 119 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: The BOJ takes Japan into uncharted waters by surprisingly breaking down the lower bound in rates, and understandably, the JPY is broadly weaker as an effect. Market remains wary of the medium term implications of this move, but what is clear is BOJ remains in the middle of its easing cycle (rather than the end, as some BOJ watchers would have thought).
Technical: While 120.40 supports intraday downside reactions a close over 131.65 eases bearish pressure an opens a test of 134 next.
Interbank Flows: Bids 129 stops below. Offers 132 stops above
Retail Sentiment: Bearish
Trading Take-away: Sidelines
AUD/USD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: The AUD showed no explicit response to the BoJ’s new easing monetary policy. AUD/USD peaked at Asian session and then dropped slightly to 0.7080. Aussie was supported by better-than-expected employment figures and improving risk appetite, making it move away from the monthly low of 0.6828. Markets await the RBA meeting due Tuesday.
Technical: While .7000 caps intraday downside expect a test .7200. Only a closing breach of .7150 eases immediate downside pressure.
Interbank Flows: Bids .7000 stops below. Offers .7150 stops above
Retail Sentiment: Neutral
Trading Take-away: Sidelines
USD/CAD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish
Fundamental: Loonie surged due to rebound in oil prices. USD/CAD is now trading at around 1.3970 handle, while the pair may go down further if oil prices continue their rally. The Canadian dollar has rebounded 5 percent from the 12-month low after Bank of Canada surprised the whole market with policy rate left unchanged. The Loonie was also supported by better risk sentiment and BoJ’s rate cut.
Technical: While 1.4160 caps upside reactions expect a broader corrective phase to test AB=CD corrective swing target at 1.3750 support. Only above 1.4330 eases immediate downside pressure and opens a retest of 2016 highs.
Interbank Flows: Bids 1.3950 stops below. Offers 1.4150 stops above
Retail Sentiment: Bullish
Trading Take-away: Sell pullbacks to 1.43 for 1.40
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