Vantage FX | Chinese PMI bouys, Yen low might be in | 23rd November 2012

November 23, 2012

With US markets closed for the Thanksgiving holiday Europe had a great night after the positive improvement in the Chinese HSBC  PMI was built upon with reasonable PMI outcomes from Europe’s big economies. The Yen also weakened substantially as well but its rally back is suggestive of an interim bottom for the moment.

Looking at the PMI results and starting in China the HSBC Flash PMI showed that manufacturing output was in expansionary territory for the first time in 13 months printing at 50.4 from 49.5 previously. Clearly this is not roaring higher but at a 13 month high it is another indicator that the Chinese authorities have indeed fashioned a soft landing.

In Europe the PMI’s were similarly encouraging although still mainly in the contraction zone as you can see in the chart beside from Markit. Indeed the French PMI increased from 43.7 to 44.7, Germany from 46.0 to 46.8 and the overall Eurozone from 45.4 to 46.2. So its still recession and contraction for Europe at the moment but at least there was some improvement. But the employment sub index was weak still so there is certainly more hard going on the jobs front for the many millions of Europeans who are out of work.

Europe is clearly still struggling under austerity.

Elsewhere in Europe Spain kicked off its borrowing program for 2013 with a bond auction raising €3.9 billion from 2012 to 2021. Spain needs to raise something in the order of €207 billion next year possibly more if the budget deficit overshoots current expectations.

Stocks

So on balance at the close the Europeans were happy with the Chinese data and that of Europe and the bourses were sharply higher. The FTSE was up 0.68%, the DAX rose 0.84% and the CAC was 0.60% higher – indeed all of the European markets I watch were higher overnight. Also worth noting is that hopes continue to grow that a Greek solution is possible at next Monday’s meeting.

In Asia yesterday the Chinese data was the primary Macro focus resulting in a mostly bullish bias across the region. the Nikkei was up 1.56%, the Hang Seng rose 1.02%, the Kospi was 0.82% higher with the Straits Times also ebullient rising 0.89%.

The Australian market likewise was higher up 0.95% in ASX All Ords terms and as you can see in the chart above ran into an old trendline which it was unable to close above. From a trading perspective there is a lot of congestion for the SPI in the 4330-4530 zone on the weekly charts and I would be looking for a consolidation in this zone before the next big move. The top of this zone is an old trendline stretching back to 2007 so it is HUGE.

FX Markets

The first thing I do everyday is run through Reuters and Bloomberg on my iPhone for any news that might be relevant for this note while I’m making a coffee and then the next thing I do is sit down and scroll through the charts of the 40+ markets I watch.

What struck me this morning was the candlesticks on the USDJPY and many of the Yen crosses which, when combined with my other indicators suggest that even within the overall uptrend an interim top might, I stress might, be in for the moment. Of interest is the very last candle stick which shows the yen made a new low (USDJPY high) in the last 24 hours but has or is closing below the close of yesterday. At the same time my MACD indicator is at a very high level and the ATR has risen materially over the past month or so. What this says to me is that longs need to be brought closer to market or if super aggressive a short could be instituted with a stop above last nights high.

But remember I am very bullish longer term this cross so it is a counter trend trade.

Elsewhere EURUSD pushed a little higher but could not hold onto gains. Euro is currently at 1.2876 up 0.38% but off the days high of 1.29oo. Technically it looks like it can run toward resistance at 1.2985ish and we’ll see how it looks there. Against the GBP Euro is trying to break back inside its old uptrend but its been trying to do that for a couple of weeks now. With GBP hitting trendline resistance against the USD EURGBP just moght be able to get through if EUR kicks on. Worth noting is that EURJPY has broken a 3 year downtrend overnight so a close around these levels would be a big signal for that cross.

For the AUD 1.04 was the high again and the AUD sits at 1.0385 presently – It remains becalmed.

Commodities

For me the big news on commodities overnight was that Barclays are leaving the floor of the LME which has to have an impact on liquidity longer term otherwise not a lot of action except for copper which was pushed higher by the Chinese PMI data up 0.6%.

Datawise German GDP tonight will be important and interesting as will the IFO report and Italian retail sales. Otherwise quiet with no data in Australia and the US having a half day’s trade.

Thoughts, comments, queries together with frank and fearless feedback all welcome. I’m happy to answer questions or comments on the comment stream wherever I can

NB: Please note all references to rates above are approximate and should not be used for trade reference.

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