FX markets were relatively quiet Monday, with the dollar trading midday in a ±0.2% range against the other G10 currencies. Perhaps the only noticeable theme was what didn’t happen the commodity currencies didn’t get a boost from the higher-than-expected HSBC/Markit China PMI index for September. In fact, the AUD/USD actually jumped about 35 pips when the news came out. After coming out below the official PMI for the last five months, this private-sector version of the PMI has now moved above it and is firmly in expansionary territory at 51.2 in September, up from 50.1 (vs 51.0 for the official version for August). Somehow in just two months this index has shifted from the worst contraction in a year to the best expansion in six months, which suggests that the Chinese government is actively working to boost growth (such as the leap in aggregate financing in August to RMB 1.57tn from RMB 809bn in July, reflected also in the 13% yoy rise in the weighted average home price in the 10 largest cities in August). The one area where the China PMIs did have an impact was on the precious metals. They suffered a set-back on Friday after St. Louis Fed President Bullard revived the possibility of tapering in October, but rebounded in European trading this morning, particularly silver.
Silver moved higher during the European morning after rebounding from the support level of 21.26 (S1). The price left the lower Bollinger band, and during the early European afternoon found resistance at the 20-hour moving average. If the bears do not allow the bulls to break above the 20-hour moving average, I expect them to challenge once more the 21.26 (S1) support, where a clear break should extend their move towards the 20.81 (S2) level. However, if that is not the case and the longs manage to cross above the 20-hour moving average and the 21.92 (R1) hurdle, they should drive the battle towards the next resistance barrier of 22.40 (R2). Nonetheless, on the longer time frames (4-hour, daily charts) a long term downtrend is still in effect since the beginning of October 2012.
Support: levels are identified at 21.26 (S1), followed by 20.81 (S2) and 20.34 (S3).
Resistance: is at 21.92 (R1), followed by 22.40 (R2) and 22.83 (R3) respectively.
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