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Risk Appetite Capped by Weak China Data

ByActionForex
Published 12/30/2011, 05:15 AM
Updated 03/09/2019, 08:30 AM
EUR/JPY
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Risk appetite was given a lift overnight on solid US data but was capped in Asian session following China manufacturing data. The preliminary reading of HSBC manufacturing PMI stayed in contraction region at 48.7 in December. Weakening external demand is starting to impact exports and the manufacturing sector. This was also reflected in exports which slowed in November for the third month. There are prospects of further easing measures from PBoC as markets are speculating a reserve ratio cut in early January. Focus will turn to the official PMI to be released this weekend.

Dollar pared back some gains after yesterday's Italian bond sales triggered rally. Dollar index is still hovering around 80.5 level as there is a lack of follow through buying above 80. Yen is seen mildly higher in Asian on last minute settlement orders of Japanese exporters. EUR/JPY keep on pressing 100 psychological level and would likely break through on current weak sentiments in Euro. Moreover, weakness in Sterling could accelerate on talk of expansion in BoE's GBP 275b quantitative easing program. Euro and Sterling should remain weak against dollar and yen, with yen holding a mild upper hand.

Commodity currencies are so far steady and would remain so for a while as the worry on Eurozone debt crisis is balanced by risk appetite in US. DOW's retreat from this week's high of 12328 was shallow so far. While rebound from 10404.49 is still set to continue to 61.8% projection level at 12393.28 and break will target a test on 12876 key resistance. That's the likely scenario in January if we get a strong NFP number. In any case, we'll stay bullish in DOW as long as 55 days EMA (now at 11875) holds.

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