Market Overview
Sentiment already buoyed by Wall Street closing at record highs on Friday was given a further boost over the weekend with the announcement of better than expected Chinese manufacturing data. has helped to improve the outlook in Asian trading. In Asia, with the pick-up in sentiment, the weakness of the Japanese yen has helped the Nikkei to climb 2% climb on the day. This sentiment is also filtering through to European trading this morning, with markets trading in positive territory.
The official China Manufacturing PMI improved to 50.8 beating the 506 expected and was a 5 month high. Whilst this is does not completely dispel concerns over the Chinese economy, it is a step in the right direction. It also sets us up nicely for all the manufacturing PMIs today with Eurozone throughout the morning, UK at 09:30BST (forecast 57.0) and the US ISM Manufacturing at 15:00BST (forecast 55.5)
Chart of the Day – EUR/JPY
After showing a few weeks of consistent decline, Euro/Yen is showing signs of improvement once more. The recovery is now into a third day and is eyeing a test of the reaction high at 139.36.
Encouragingly, the daily RSI has already made a move above its equivalent reaction high which suggests improving momentum (which can often be a lead indicator). There has also been a Stochastics buy signal confirmed and a cross over buy signal on the MACD.
EUR/USD
Friday’s rally has given the Euro bulls some hope of a recovery moving into what should prove to be an especially volatile week for Euro/Dollar. However the key barrier to overcome is the resistance at $1.3670 which is the neckline of the big double top pattern that now dominates the daily chart.
Even already overnight with Friday’s reaction high at $1.3649 there are signs that this could be a false dawn and simply yet another chance to sell.
GBP/USD
The support of the rising 89 day moving average (currently $1.6689) is still holding up Cable. This comes after the big uptrend dating back to November on the daily chart was broken to seriously question the bullish outlook.
However, whilst the 89 day ma remains intact along with the reaction low at $1.6691 then there will be question marks over how long the correction will go on for.
USD/JPY
There is a battle going on between the buyers and the sellers. This is reflected in the long tails on the daily candlestick patterns of the past few days. This suggests a degree of uncertainty as an initial desire to sell is curbed by bullish forces fighting back.
Furthermore, the pivot-level around 102 is again being tested. This leaves Dollar/Yen at a crossroads near term.
Gold
The sell-off in gold continues as the decline reaches a fifth straight session. The initial implied downside target from the symmetrical triangle breakdown of $1240 has now been all but achieved as the correction now eyes the next lows at $1237.94 and subsequently $1231.36.
Although the selling momentum is strong, the RSI is now more oversold than at any time for the past 12 months and this could begin to limit the downside.
There are now two resistance levels holding back a near term recovery, around $1251 and $1260. Any recovery should be seen as a chance to sell now as the medium to longer term outlook does not look promising.