Mixed European PMI’s, and poorer than expected UK PMI, have allowed for a drop in the Dollar after finishing last week near the highs of the current range. The pound has sold off via profit taking although this will actually help to serve two purposes. One is to drop the GBP within it’s current bullish channel allowing another long entry soon, and the other is to make economists responsible for forecasting UK data to introduce some reality to their guesses and bring them closer to something more realistic. The UK number is still a fantastic number in the scheme of things, so a bearish reaction just highlights how short-sighted traders are in their approach to economic fundamentals.
The rest of the week is very busy with numerous rate decisions. Most notably could be the RBA, with inflation now hindering any rate cut ambitions for the the Aussie which could see a long awaited relief rally.
We also of course have NFP to consider which unless showing a rebound to something more on trend, will see some major dollar weakness creep back into the markets as doubters begin to unwind their taper led dollar long positions.
This weeks fundamental highlights are:
Mon Feb 3
8:15am EUR Spanish Manufacturing PMI
8:45am EUR Italian Manufacturing PMI
9:30am GBP Manufacturing PMI
3:00pm USD ISM Manufacturing PMI
Tue Feb 4
3:30am AUD Cash Rate
3:30am AUD RBA Rate Statement
9:30am GBP Construction PMI
Wed Feb 5
8:15am EUR Spanish Services PMI
8:45am EUR Italian Services PMI
9:30am GBP Services PMI
10:00am EUR Retail Sales m/m
1:15pm USD ADP Non-Farm Employment Change
3:00pm USD ISM Non-Manufacturing PMI
5:30pm USD FOMC Member Plosser Speaks
Thu Feb 6
12:30am AUD Retail Sales m/m
11:00am EUR German Factory Orders m/m
Tentative GBP MPC Rate Statement
12:45pm EUR Minimum Bid Rate
1:30pm EUR ECB Press Conference
1:30pm USD Trade Balance
1:30pm USD Unemployment Claims
Fri Feb 7
12:30am AUD RBA Monetary Policy Statement
9:30am GBP Manufacturing Production m/m
11:00am EUR German Industrial Production
1:30pm USD Non-Farm Employment Change
1:30pm USD Unemployment Rate
All times are GMT
USD% Index
Still within a bullish channel and now retraced sightly from highs, further bounces from support are likely until there is a major catalyst to change trend. However, having been in a wide range for so long it may take several rejections to break to a fresh high and even then the rate of ascent is not currently particularly steep. RSI has broken below the 100 period moving average which suggests a slight stall for the time being. I am bullish USD
USD% Index Resistance (EUR/USD support): EUR/USD 1.3507, 1.3489, 1.3465, 1.3450
USD% Index Support (EUR/USD support): EUR/USD 1.3532, 1.3560, 1.3688
EUR% Index
Dollar weakness and EURGBP strength have allowed for a slight push back up to the recently broken support for the EUR% index. RSI remains bearish and below the 100 period moving average. Strong support will likely be seen at 1.3450, although if the dollar can gain some momentum then we could see a steepening of the current bearish channel to accommodate a greater sell-off. With the dollar likely to hold within range until NFP though we could be in for another week of cross led chop. I am bearish EUR.
EUR% Index Resistance: EUR/USD 1.3520, 1.3550, 1.3600
EUR% Index Support: EUR/USD 1.3450, 1.3369
JPY% Index
Yen strength is currently a major driver for the markets, with the risk-off tone still prevailing overall and some strong levels broken on the JPY% index. The major long-term channel resistance shown in white is now in our sights and we could easily see a push up to there if the Nikkei continues to sell off at the rate that it is. The key psychological level of 100.00 is now a big support level for USD/JPY. I am bullish JPY.
JPY% Index Resistance (USD/JPY Support): USD/JPY 101.21, 101.00, 100.00
JPY% Index Support (USD/JPY Resistance): USD/JPY
GBP% Index
A reasonably strong push away from overbought this time aided by poorer than expected PMI data means that we are now approaching the buy zone for the pound. We have strong support to break though from the recent lows which if it pushed us higher may form a bearish head and shoulder formation to bring us to the bottom of the channel. Major support is currently at 1.6150 for GBP/USD. We have an MPC rate statement this week, which could see a slight change in the wording regarding forward guidance. A movement of the goalposts there would likely be quite bearish for the pound since a portion of the bullishness recently has been via rate hike speculation. I am bearish GBP within the longer bullish trend.
GBP% Index Resistance: GBP/USD 1.6400, 1.6460
GBP% Index Support: GBP/USD 1.6344, 1.6327, 1.6150
AUD% Index
We have pushed strongly away from lows with this week’s early dollar weakness, which suggests a profit taking move ahead of the RBA statement. The market expects a move away from doveish comments now that there is higher than desired inflation to hinder the rate cut ambitions of the RBA. A lack of comment regarding further rate cuts, even if we see a hold on rates will likely be bullish from the relatively deep lows currently observed. I am bullish AUD.
AUD% Index Resistance: AUD/USD 0.8836, 0.8880, 0.8900
AUD% Index Support: AUD/USD 0.8778, 0.8731, 0.8700
CHF% Index
Still not a convincing break of trend from the Swiss franc although momentum is still slightly to the downside. A bearish EUR/CHF is preventing the index gaining any significant momentum currently. If the dollar fails to break to a new high, or if NFP is significantly weaker than expected then we could see a very strong flight to safety and a sharp rally back to the Swiss Franc. I am bearish CHF.
CHF% Index Resistance (USD/CHF support): USD/CHF 0.9000, 0.8950
CHF% Index Support (USD/CHF resistance): USD/CHF 0.9100, 0.9150