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On the AUDUSD count we see price currently undergoing an intraday rally, which we see it as unfolding sub-wave b as part of a three wave correction in wave 4. Well, if that is the case, then more weakness will follow from around the 0.77250 region and down into wave c of 4. But if price keeps going higher, then we could be already trading in wave 5.

AUDUSD, 1H

EUR/GBP - 0.8697

 
Recent wave: Major double three (A)-(B)-(C)-(X)-(A)-(B)-(C) is unfolding and 2nd (A) has possibly ended at 0.6936.

Trend: Near term down

Original strategy  :

Buy at 0.8620, Target: 0.8750, Stop: 0.8580

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.8620, Target: 0.8750, Stop: 0.8580

Position : -

Target :  -

Stop : -

 
Euro’s near term choppy trading is likely to continue and initial downside risk remains for pullback to 0.8645-48 (38.2% Fibonacci retracement of 0.8422-0.8788), however, reckon downside would be limited to 0.8615-20 and bring another rise later, break of 0.8760 would suggest the pullback from 0.8788 has ended, bring retest of this level, above there would extend the rise from 0.8403 low to 0.8800 but loss of near term upward momentum should prevent sharp move beyond 0.8825-30 and price should falter well below 0.8850.

In view of this, we are looking to buy euro on subsequent pullback as 0.8615-20 should limit downside. Below 0.8605 (50% Fibonacci retracement of 0.8422-0.8788) would defer and suggest top is possibly formed, risk test of 0.8560-65 (61.8% Fibonacci retracement) but support at 0.8547 should remain intact. 

Our preferred count is that, after forming a major top at 0.9805 (wave V), (A)-(B)-(C) correction is unfolding with (A) leg ended at 0.8400 (A: 0.8637, B: 0.9491 and 5-waver C ended at 0.8400. Wave (B) has ended at 0.9413 and impulsive wave (C) has either ended at 0.8067 or may extend one more fall to 0.8000 before prospect of another rally. Current breach of indicated resistance at 0.9043 confirms our view that the (C) leg has ended and bring stronger rebound towards 0.9150/54, then towards 0.9240/50.

Yesterday's close in red signaled that recovery from $47.08 low might be running out of steam ahead of psychological / daily cloud base barrier at $50.00.

However, oil managed to close above 200SMA that marks solid support ($48.70) for the second day keeping in play hopes of fresh attempts higher.

Stronger direction signals could be expected on break of either pivot (48/70 or 50.00), while the price may spent some time in extended consolidation within this range.

Near-term studies are neutral, while bearish tone prevails on dailies and keep risk shifted lower.

Firm break below 200SMA would signal upside rejection and fresh weakness that may return to $47.08 low.

Conversely, violation of base of thick daily cloud ($50.00) would trigger stronger correction of $53.78/$47.08 fall.

Res: 49.10; 49.61; 50.00; 50.43
Sup: 48.70; 48.44; 47.90; 47.08

USD/CAD - 1.3330

 
Recent wave: Only wave v of c has ended at 0.9407 and wave C of major A-B-C correction is underway for headway to 1.4700

Trend:  Near term up

 
New strategy             :

Stand aside

Position: -

Target:  -

Stop:-

Although the greenback has recovered from 1.3276, this week’s selloff suggests top has been formed at 1.3535 earlier and upside should be limited to 1.3380-90 and price should falter below previous support at 1.3421 (now resistance), bring another decline later, below said support at 1.3276 would add credence to our bearishness and extend the fall from 1.3535 for retracement of recent upmove to 1.3235-40 (61.8% Fibonacci retracement of 1.3056-1.3535) but reckon previous resistance at 1.3210 would hold due to near term oversold condition.

In view of this, would be prudent to stand aside in the meantime. Above previous support at 1.3421 (now resistance) would suggest low is formed, bring a stronger rebound to 1.3450 and possibly test of resistance at 1.3479, however, only break of 1.3495 resistance would indicate the pullback from 1.3535 has ended and bring retest of this level later.

To recap, wave B from 1.3066 is unfolding as an a-b-c and is sub-divided as a: 1.2192, b: 1.2716 and wave c is a 5-waver with i: 1.1983, ii: 1.2506, extended wave iii with minor iii at 1.0206, wave iv ended at 1.0781 and wave v as well as wave iii has ended at 0.9931, hence the subsequent choppy trading is the wave iv which is unfolding as (a)-(b)-(c) with (a) leg of iv ended at 1.0854, followed by (b) leg at 1.0108 and (c) leg as well as the wave iv ended at 1.0674. The wave v is sub-divided by minor wave (i): 0.9980, (ii): 1.0374, (iii): 0.9446, (iv): 0.9913 and (v) as well as v has possibly ended at 0.9407, therefore, consolidation with upside bias is seen for major correction, indicated target at 1.3700 and 1.4000 had been met and further gain to 1.4700 would be seen later.

Canadian manufacturing sales were up by a consensus-beating 0.6% in January - well above the 0.3% contraction expected by the markets. The story was even better when discounting price differences, with volumes up an even stronger 0.7% on the month.

Non-durable shipments were the crux of the story, rising 2.3% during January, while durable sales fell -0.8% m/m in nominal terms. Petroleum and coal products (+7.0%) and chemicals (+2.5%) accounted for most of the gain on the nondurable front, with some help from food & beverage shipments also. On the durable side, despite rising motor vehicle shipments transport equipment pulled back, down 2.9%, after lofty gains in the previous month, as aerospace (-11.8%) and other transport equipment shipments pulled back after a strong December print. Fabricated metals helped offset some of the losses on the durable side, up 2.4% in January.

Regionally, manufacturing sales were up in all but three provinces with Nova Scotia (-5.3%) and Quebec (-1.5%) posting the weakest readings given their non-auto transport equipment sectors. B.C.'s shipments were largely flat, at -0.3%. On the other hand, P.E.I. and oil-producing provinces of Newfoundland & Labrador, Saskatchewan, and Alberta saw the largest gains at 5.6%, 3.4%, and 2.7%, respectively.

Inventories were up 1.1% on the month, nudging the inventory-to-sales ratio down to 1.31 (preciously 1.30). Forward looking indicators were very encouraging, with new orders up 4.6% and unfilled orders up 0.3% in January.

Key Implications

This was another good news report for the Canadian manufacturing sector, suggesting that the momentum in the sector that heated up in late-2016 carried over into the beginning of 2017. The report provides some potential upside to our already solid first-quarter forecast of 2.6% for the Canadian economy (See our latest Quarterly Economic Forecast).

The report is also encouraging as far as future activity is concerned, with leading indicators such as new and unfilled orders looking better this month than they did prior. This suggests that the relatively low loonie and robust U.S. and global demand have proven beneficial for Canadian industry, with net trade likely to continue supporting economic growth for the rest of the year.

Having said that, there of remain a lot of uncertainties as far as the export sector is concerned, with "America First" trade rhetoric posing some downside risks as far as investment and net exports are concerned. These risks, alongside existing labor slack and a likely cooling in housing activity, should ensure the Bank of Canada remains on the sidelines until late next-year.

• Nominal manufacturing sales rose 0.6% to build on 2.1% and 2.3 % gains in December and November, respectively.
• Gains were broadly-based with 14 of 21 industries posting increases in January.
• Sale volumes rose 0.7% following a 2.1% December gain and 1.6% rise in November.
• Inventories increased 1.0% but the inventory-to-sales ratio was little-changed from the almost 6-year low posted in December.

Our Take:

An unexpected third consecutive gain in manufacturing sale volumes in January brought the latest three-month cumulative increase to 4.5% with the latest monthly reading up an annualized 11% from its Q4 average. Inventories also rose, suggesting that monthly production growth may have slightly outpaced the 0.7% increase in January sales volumes which, in turn, suggests that overall monthly GDP growth likely remained in positive territory after posting solid above-trend gains in each of November (0.5%) and December (0.3%). The monthly manufacturing data is notoriously volatile but sales growth has generally been outpacing production in recent months - with the inventory-to-sales ratio in January retracing little of a drop to an almost 6-year low in December - suggesting there is still room for near-term production to rise further. Survey based measures (eg. the Markit Canada Manufacturing PMI and CFIB's Business Barometer) of manufacturing activity have also generally improved to-date in 2017. Challenges in the sector still remain. It remains the case that much of the competitive boost from a weak Canada versus U.S. dollar as oil prices declined has been offset to-date by strength relative to other competitors for the U.S. import market (in particular, Mexico). As well, uncertainty about the future of Canada's trading relationship with the U.S. has likely being weighing on manufacturer's investment plans, which generates concern about the future of the sector over the longer-term. Nonetheless, recent trends are encouraging with early data for 2017 (including strengthening labour markets through February) suggesting that improved momentum in the economy over the second half of 2016 carried over into early 2017.

Market movers ahead

• Euro Flash PMI to remain strong in March as exports and investments are seeing a tailwind at the moment. Euro wage growth for Q4 will also be released. We expect another soft print just above 1% leaving underlying inflation pressure very subdued.
• We look for US durable goods orders to rise further as investment growth picks up. Markit PMI manufacturing for March is expected to be broadly flat.
• In the UK the main movers are CPI and retail sales. We do not expect them to change the fact that Bank of England is on hold for a long time.
• Main news in Scandi will be the Labour Force Survey in Norway. We expect the unemployment rate to stay around 4.5%.

Global macro and market themes

• A peak in ISM manufacturing and lower inflation removes the main reflation fuel for the bond bear market.
• Lower policy uncertainty and a soft Fed hike gave more support to the stock market.
• We are still long-term bulls on equities but very upbeat sentiment provides the risk of a short-term correction.

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USD/CHF - 0.9961

Original strategy :

Sell at 1.0020, Target: 0.9920, Stop: 1.0055

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 1.0020, Target: 0.9920, Stop: 1.0055

Position : -

Target :  -

Stop : -

As the greenback has remained under pressure, suggesting recent decline from 1.0171 is still in progress and may extend further weakness to 0.9920-25, however, loss of near term downward momentum should prevent sharp fall below 0.9900 and reckon 0.9870-75 would hold from here, risk from there has increased for a strong rebound later.

In view of this, would not chase this fall here and would be prudent to sell dollar on recovery as the lower Kumo (now at 1.0019) should limit upside and bring another decline. Only above previous support at 1.0060 (now resistance) would abort and signal low is formed instead, risk rebound to 1.0090-95 first.

GBP/USD - 1.2352

Original strategy :

Buy at 1.2310, Target: 1.2410, Stop: 1.2275

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.2290, Target: 1.2400, Stop: 1.2255

Position : -

Target :  -

Stop : -

As cable has eased after rising to 1.2399, suggesting consolidation below this level would be seen and pullback to 1.2320-25 cannot be ruled out, however, reckon downside would be limited o 1.2290-00 and bring another rise later, above said resistance at 1.2399 would extend recent rise from 1.2109 low to 1.2410-15 but reckon 1.2440-50 would hold, price should falter well below resistance at 1.2471, bring retreat later.

In view of this, would not chase this move from here and we are looking to buy cable on pullback as 1.2290-00 should limit downside and bring another rise. Below 1.2265-70 would suggest top is possibly formed, risk test of said support at 1.2241 which is likely to hold on first testing.

EUR/USD - 1.0735

Original strategy  :

Buy at 1.0675, Target: 1.0775, Stop: 1.0640

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.0675, Target: 1.0775, Stop: 1.0640

Position : -

Target :  -

Stop : -

As the single currency has eased after rising to 1.0782, suggesting consolidation below this level would be seen and pullback to 1.0725-30 cannot be ruled out, however, reckon downside would be limited to support at 1.0706 and the lower Kumo (now at 1.0674) should hold, bring another rise later to resistance at 1.0799 but loss of near term upward momentum should prevent sharp move beyond another previous resistance at 1.0829, bring retreat later.

In view of this, would not chase this rise here and we are looking to buy euro on pullback as 1.0670-75 should limit downside. Below 1.0640-50 would signal top is formed, bring weakness to 1.0620-25 but said support at 1.0600 should remain intact.