Sample Category Title

'High costs and weak wage growth are sapping the strength of consumers, with rates of expansion in output and new orders for these (consumer) products slowing further.' - Rob Dobson, IHS Markit

The Purchasing Manager's Index for the British manufacturing sector dropped slightly in March, contrary to experts' prognoses, who expected a modest increase. According to IHS Markit, the PMI tumbled to a four-month low of 54.2 on a seasonally adjusted basis. Nevertheless, this was still a good result for the manufacturing sector, as the PMI did not fall below the long-term average. One of the key contributors to manufacturing activity growth were exports, which became more competitive on the international market amid the sharp fall in the value of the Pound since the Brexit vote. Even though exports rose at a slower pace, they reflected the greater number of orders, which, in turn, pointed to high oversees demand and strong business confidence. In fact, business optimism in March reached a ten-month high, as 52% of the surveyed companies said they expected to see a surge in production during the next 12 months. Such positive prospect led to an improved hiring and overall employment improvement. However, inflationary pressures became more burdensome and higher raw material prices forced companies to charge higher selling prices. Incidentally, input cost growth in March was one of the fastest observed over the 20-year history of the survey.

AUD/USD – 0.7562

Recent wave: Wave 5 ended at 1.1081 and major correction has commenced for fall to 0.7000 and then towards 0.6500-10

Trend: Near term up

New strategy :

Sell at 0.7595, Target: 0.7400, Stop: 0.7655

Position: -
Target:  -
Stop:-

As aussie has fallen again after breaking support at 0.755, adding credence to our bearish view that the decline from 0.7750 top (last month’s high) is still in progress and may extend further weakness to 0.7530 but a break below indicated support at 0.7491 is needed to retain bearishness and bring further subsequent decline to 0.7450-55 (50% Fibonacci retracement of 0.7158-0.7750), however, near term oversold condition should limit downside to 0.7380-85 (61.8% Fibonacci retracement), risk from there is seen for a rebound later.

In view of this, would not chase this fall here and would be prudent to sell aussie on recovery as 0.7590-00 should limit upside and bring another decline later.  Above 0.7625-30 would defer and risk a stronger rebound to 0.7650 but still reckon resistance at 0.7680-85 would limit upside and bring another decline later.

On the 4-hour chart, the move from 0.8066 is the wave 5 with i: 0.8860, ii: 0.8315, wave iii is an extended move ended at 1.0183, iv: 0.9706 and wave v has ended at 1.1081 (also the top of entire wave 5). The subsequent selloff is the major correction which is unfolding as ABC-X-ABC and 2nd A leg has ended at 0.8848, followed by a-b-c wave B which ended at 0.9758, hence, 2nd C wave is now in progress and indicated downside target at 0.7000 and 0.6950 had been met, so further fall to 0.6710-20 cannot be ruled out.

'The post-election resurgence of the manufacturing sector seen late last year is showing signs of losing steam.' - Chris Williamson, IHS Markit

US manufacturing activity rose in line with analysts' expectations last month, a private survey revealed on Monday. The Institute for Supply Management reported its Purchasing Managers' Index for the manufacturing sector came in at 57.2 in March, down from the preceding month's 57.7. However, the figure met market forecasts. Out of the 18 industries, 17 reported growth last month. Data also showed that the sharp oil price rebound contributed most to the manufacturing sector recovery over the past several months. Nevertheless, some manufacturing companies projected activity growth to remain flat in the upcoming months. The New Orders Index came in at 64.5 points, following the February reading of 65.1. However, the gauge if new orders remained at its three-year highs, suggesting that the sector would remain on a solid growth track. Manufacturers also pointed to rising raw material prices, providing further evidence that inflationary pressures continued to build in the US economy. Meanwhile, Markit reported that the group's PMI for the US manufacturing sector dropped to 53.3 last month, the lowest in six months, compared to the prior month's 53.4, whereas analysts anticipated a slight rise to 53.5 points. Furthermore, Markit said that the New Orders Index came in at its slowest pace since October.

'Although we are experiencing a cooling off period in retail sales, we are confident that the reduction in the company tax rate ... will benefit hundreds of thousands of small and medium-sized businesses, their employees and the broader Australian community.' - Russell Zimmerman, Australian Retailers Association

As markets widely expected, the Reserve Bank of Australia left its key interest rate unchanged at its April monetary policy meeting on Tuesday, expressing concerns over the nation's housing market. Indeed, in some regions house prices more than doubled since the global financial crisis, prompting fears about the property bubble. Policymakers voted to keep the Cash Rate at a record low of 1.50%, claiming that any significant change to interest rates would be a major headwind to the real estate market and would lead to fragile economic growth. The RBA Governor Philip Lowe urged mortgage lenders to limit lending, as surging property prices continued pushing up the household debt to income ratio. Last month, data showed that the Australian unemployment rate climbed to 5.9%, while retail spending dropped 0.1%. These and other leading economic indicators forced the Central bank to remove its 3% economic growth forecast. However, policymakers claimed that the recent data was 'consistent with ongoing moderate growth'. According to market analysts, the RBA will likely remain on hold for the foreseeable future amid subdued inflation growth, soft employment growth, the housing market boom and high degree of uncertainty about the global economy.

US President Trump and the Chinese president Xi Jinping, are scheduled to meet in Trump's Mar-a-Lago resort in Florida, this Thursday April 6.

There are some sensitive issues between the US and China, such as trade protectionism, currency manipulation, South China Sea claims and North Korea's nuclear program. Trump stated that if China doesn't take actions to rein in the development of nuclear strength in North Korea then the US will act alone. President Xi expressed in mid-March that 'the mutual benefits between the two nations outweighs the conflicts with cooperation as the only right choice for long term development'.

On Monday evening, FOMC voting member Harker stated that 'the Fed is likely to raise rates twice more this year' which is in line with the Fed's 'gradual' rate hike pace. USD strengthened this morning during early European session with the dollar index testing the 100.50 resistance level.

US non-farm payroll and unemployment for March will be released this Friday at 13:30 BST. The US labour market has remained solid, seeing more than 200,000 job gains per month in average over the past six months.

This morning the Reserve Bank of Australia (RBA) announced that rates will remain unchanged at 1.5% in line with expectations. However, the RBA made a dovish statement as the latest unemployment rate rose to a 13-month high. AUD/USD hit a 3-week low of 0.7561 this morning breaking the significant psychological support level at 0.7600.

Economic data for today is thin. UK construction PMI (Mar) to be released at 09:30 BST will likely affect GBP and GBP crosses. The US trade balance is released at 13:30 BST with Fed governor Tarullo making a speech at 21:30 BST.

Bank of Japan Governor Kuroda will make a speech at 08:15 BST on Wednesday April 5. Yen has been one of the best performing currencies over the past few months, as the recent risk events such as Trump's healthcare bill and the triggering of Brexit, has resulted in the rallying of safe havens.

Regarding stocks, I think we have some nice structure on E-mini S&P500; a five wave rise from 2321 on E-mini S&P500 followed by a three wave set-back into our 2346-2351 support zone. So far we can already see some upward reaction so we suspect that price will continue to rise, back above 2370 in sessions ahead.

S&P500, 1H

The pair is in red for the third straight day and extends weakness from 112.18 recovery top that so far retraced over 76.4% of 110.09/112.18 recovery leg.

Firm bearish tone has been established on all timeframes and favors renewed attack at recent lows which lay just above psychological 110.00 support and 109.91 (50% retracement of larger 101.17/118.65 rally) to signal fresh extension of bear-phase from 118.65 (15 Dec 2016 / 03 Jan 2017 double-top).

Bears seek for weekly close below 111.36 (weekly cloud top) for confirmation.

Initial resistance lies at 110.90 (session high / broken Fibo 61.8% of 110.09/112.18 upleg), followed by daily Tenkan-sen at 111.14, which should ideally limit recovery attempts.

Res: 110.90, 111.14, 111.36, 111.57
Sup: 110.32, 110.09, 109.91, 109.30

Cable is strongly in red for the second day, after yesterday's close below daily cloud top/Tenkan-sen line generated bearish signal. Fresh acceleration lower in Asia took out support at 1.2443 (Fibo 61.8% of 1.2374/1.2553 upleg) and is currently pressuring 100SMA at 1.2413. Weak near-term studies see risk of further weakness and full retracement of 1.2374/1.2553 upleg, to confirm lower top at 1.2553 and open way for deeper correction of larger 1.2107/1.2613 rally. Political uncertainty maintains pressure on sterling that results in weakening daily chart bulls. Yesterday's low at 1.2463 marks initial resistance ahead of strong barrier at 1.2494 (session high/daily Tenkan-sen/cloud top) and only sustained break here would neutralize downside threats.

Res: 1.2463, 1.2494, 1.2522, 1.2553
Sup: 1.2414, 1.2401, 1.2374, 1.2360

The Euro is trading in extended consolidation above cracked Fibo 61.8% support at 1.0650, but was so far unable to clearly break lower.

The upside remains capped by falling thick hourly cloud (spanned between 1.0670 and 1.0708) which maintains the pressure for final break below 1.0650 and test of next strong supports at 1.0622 (daily cloud top / 100 SMA) and 1.0583 pivot (daily cloud base) in extension.

Prevailing bearish tone favors this scenario, however, strongly oversold slow stochastic on daily chart warns of extended consolidation and possible stronger upticks.

Initial resistance lies at 1.0670 and guards strong barriers at 1.0700/08 (daily Kijun-sen line / hourly cloud top), which is expected to ideally cap extended upticks.

Only close above the latter would delay bears and signal stronger correction of 1.0905/1.0641 downleg.

Res: 1.0670, 1.0700, 1.0708, 1.0745
Sup: 1.0641, 1.0622, 1.0600, 1.0583

Weekly
    •    Last Candlesticks pattern: Shooting star
    •    Time of formation: 5 Sep 2016
    •    Trend bias: Down

Daily
    •    Last Candlesticks pattern: Long black candlestick
    •    Time of formation: 24 Jun 2016
    •    Trend bias: Down

GBP/USD – 1.2478

Although the British pound slipped to as low as 1.2377 last week, the subsequent rebound on cross-trading in sterling suggests consolidation would be seen, however, as cable met resistance at 1.2559 late last week and has retreated again, suggesting weakness to 1.2433 cannot be ruled out but said support at 1.2377 should continue to hold, bring further sideways trading. Only a drop below said support at 1.2377 would signal the retreat from 1.2616 top is still in progress, bring further fall to previous support at 1.2335, once this level is penetrated, this would signal the rise from 1.2109 has ended, then weakness to 1.224050 would follow.

On the upside, whilst recovery to 1.2530-35 cannot be ruled out, reckon said last week’s high at 1.2559 would limit upside and bring further consolidation. Only a daily close above this level would revive bullishness and suggest the retreat from 1.2616 has ended, bring further gain to 1.2595-00, then retest of said resistance, break there would extend the rise from 1.2109 to 1.2650, however, as broad outlook remains consolidative, reckon upside would be limited and price should falter well below indicated previous resistance at 1.2706, bring retreat later. In the event cable is able to penetrate resistance at 1.2706, this would retain bullishness and extend the erratic rise from 1.1986 low towards another previous resistance at 1.2775 first. 

Recommendation: Exit long entered at 1.2470 and stand aside for this week. 

On the weekly chart, although cable recovered after finding support at 1.2377, early retreat from 1.2616 suggests the rebound from 1.2109 has possibly ended there and consolidation with mild downside bias is seen for weakness to 1.2400 and then test of 1.2377, however, a break below 1.2335 is needed to add credence to this view, bring further fall to 1.2240-50, then 1.2200. Looking ahead, a drop below 1.2109 support is needed to retain bearishness and suggest medium term downtrend has resumed for weakness towards recent low at 1.1986.

On the upside, expect recovery to be limited to 1.2530-35 and last week’s high at 1.2559 should hold, bring another decline. Above said resistance at 1.2559 would bring rebound to 1.2616, break there would revive previous near term bullish view that another leg of corrective rise from 1.1986 low take place and extend gain to 1.2706 resistance but break there is needed to provide confirmation, bring retracement of early downtrend for test of previous resistance at 1.2775 and later 1.2850-60 but price should falter well below psychological resistance at 1.3000.