London Forex Report: Despite the slew of weak manufacturing prints, markets appeared to be lifted by continued rebound in oil prices. We saw broad-based softening in Markit and Nikkei manufacturing indices across all countries, adding to signs of still subdued global demand. Markit indicated that US manufacturing remained in expansionary, albeit at a slower pace, of 51.3 in February. ISM manufacturing remained in contraction despite the slight uptick to 49.5 in February.
The still patchy US data somewhat tied in with Fed Dudley’s comments last night that downside risks to US growth could force the Fed to raise rates at an even slower pace. USD slipped as markets turned risk-on, but the USD Index inched 0.14% higher to 98.35, buoyed by sharp decline in major component JPY.
EUR/USD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: The euro was little changed on the greenback yesterday. It dipped at an intraday low of 1.0832 and then rebounded back above 1.0870 to start its Wednesday session. Although markets’ risk sentiment turned good due to better-than-expected US ISM Manufacturing data and the rally of US stock markets, EUR/USD didn’t respond much.
Technical: While prior support at 1.0970 acts as intra day resistance, bears target prior range support at 1.08. Only a close over 1.1080 eases immediate downside pressure.
Interbank Flows: Bids 1.0850 stops below. Offers 1.0950 stops above.
Retail Sentiment: Bullish
Trading Take-away: Sidelines
GBP/USD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: GBP struggled near a seven-year low of 1.3834 against dollar on Tuesday, with the Markit PMI showing that British February manufacturing growth was the weakest in three years. Despite this, GBP/USD tried to climb to the intraday high of 1.4016 at the start of European session, but stalled on near-term profit taking.
Technical: While 1.4040/60 acts as resistance, expect a continued grind lower for a test of the next major monthly downside objective at 1.37. Only a close over 1.4250 eases immediate downside pressure.
Interbank Flows: Bids 1.3850 stops below. Offers 1.4040 stops above.
Retail Sentiment: Bullish
Trading Take-away: Short
USD/JPY
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Fundamental: USD/JPY surged above 114.00 on Tuesday overnight as risk appetite returned due to strong US ISM Manufacturing figure and rally of US stocks. Buying JPY becomes less attractive as traders believe that BoJ will do more stimulus at coming meetings. Risk appetite is expected to be good as oil prices have become stabilized and Nikkei has prompted a rally.
Technical: Friday’s close over 113.30 sets up the potential for a broader corrective phase against the daily double bottom pattern from last week. Bulls will be looking for 112.50 to continues to support expect a further leg of corrective gains, to retest the broken neckline support at 115/116. Failure at 112 open 11 again.
Interbank Flows: Bids 112 offers below. Offers 115 stops above
Retail Sentiment: Neutral
Trading Take-away: Neutral
EUR/JPY
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Fundamental: EUR/JPY rebounded from a near three-year trough of 122.085 as traders dumped the safe-haven currency. ADP today, then NFP the events to watch. Though markets were concerned about the G20 focus on Japan and implications there, the price action is constructive, especially in the context of a bearishly biased market.
Technical: While 123 offers intraday support, expect a continued grind higher to test offers at 125. A failure at 123 refocuses bearish sights on the psychological 120 en route to a weekly downside objective at 118/117. Only a close over 125.10 eases bearish bias.
Interbank Flows: Bids 123 stops below. Offers 125 stops above
Retail Sentiment: Neutral
Trading Take-away: Neutral
AUD/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Fundamental: The Aussie hovered around 0.72 levels, having drifted up from Tuesday’s low near 0.71. AUD/USD jumped this morning after better Australian GDP, Q4 GDP came in at plus 0.6% Q/Q and 3.0% Y/Y vs expectations of 0.4% and 2.5%. The Australian dollar climbed half a US cent to above 0.7200 on the upbeat figures. Interbank futures slipped as the market lengthened the odds of another rate cut from the Reserve Bank of Australia (RBA).
Technical: While .7120 supports intraday expect a test of range resistance at .7300. Only a failure at.7050 pivotal support threatens bullish bias
Interbank Flows: Bids .7100 stops below. Offers .7300 stops above.
Retail Sentiment: Bearish
Trading Take-away: Long
USD/CAD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: CAD rallied sharply against the USD and recorded a fresh 12-week high as oil prices rose after Canada’s economy grew more than expected in the fourth quarter. The Canadian economy slowed significantly in the quarter, but the 0.8 percent annualized increase in gross domestic product topped markets’ expectations for zero growth.
Technical: While USD/CAD trades sub 1.3510, downside pressure remains the driver with bears focusing on a AB=CD ultimate downside objective at 1.2966. The next interim support level to watch is is 1.3350.
Interbank Flows: Bids 1.3350 stops below. Offers 1.3550 stops above
Retail Sentiment: Bullish
Trading Take-away: Short
