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Markets looking cautiously optimistic after China Manufacturing PMI

Market Overview

Markets are looking cautiously optimistic again this morning after better than expected China Manufacturing PMIs although being right in the in the midst of a raft of central bank decisions could leave traders touch reticent. The Bank of Japan and the Reserve Bank of Australia both held rates steady overnight and the Federal Reserve begins its two day meeting today. The bulls will be pointing to the better than expected Chinese PMIs that should help to support risk appetite. Both the official PMI and the Caixin improved to 51.2 which o0n the official data was the best reading since November 2014. However, the caution is also over the impending US Presidential Election which could restrict serious market direction in the coming days. Hillary Clinton’s latest email scandal has pegged her back in the polls and the lack of certainty is leaving investors unwilling to make the big calls. The dollar has settled slightly after a choppy start to the week, with Treasury yields also holding firm once more. Oil continues to move around on changing elements to the OEPC production story with the cartel agreeing to a document that discussed a strategy of long term market management, however ongoing concerns over record production levels continue in the near term.

Wall Street closed almost entirely flat with the S&P less than a tick lower at 2126. The Asian markets have been cautious with the Nikkei +0.1% higher, whilst European markets are mildly higher in early moves. In forex trading there is a mild dollar strengthening, but the only real mover has been the Aussie on the back of the RBA standing pat and the better Chinese PMIs. Gold and silver are slightly positive, having been supported by the Clinton email scandal. Oil is trading slightly higher.
Traders will be watching for the PMIs throughout the day with the UK Manufacturing PMI at 0930GMT which is expected to drop back slightly to 54.6 after the strong 55.4 last month. The US ISM Manufacturing is at 1400GMT and is expected to hold last month’s better than expected reading with a 51.8 this time. New Zealand unemployment is at 2145GMT and is expected to stay at 5.1%.

Chart of the Day – EUR/GBP

Has the recent corrective move helped to renew upside potential? Although the market spiked to a £0.9365 high on the day of the sterling “flash crash”, the market made a more considered move to £0.9140 under normal trading conditions before a retreat over the past couple of weeks. However, the move unwound sterling to the support of the uptrend in place since the beginning of September, which built a basis of support at £0.8877 only for the bulls to start to pull the pair higher again. This was also nicely above the old £0.8725/£0.8815 breakout resistance which is now supportive on a medium to longer term basis. Friday’s bull candle started to break through near term resistance and this move continued yesterday despite the later dip into the close. However looking at the configuration of the momentum indicators it looks as though the bulls are now in control again. The Stochastics have crossed higher and are now advancing again, the RSI has turned higher again from the corrective move to the mid to high 50s, whilst the rising 21 day moving average is also shadowing the uptrend. A move above £0.9057 would re-open the resistance at £0.9140 again. The hourly chart shows a band of support £0.8940/£0.8980 which will now be seen as a near term “buy zone”.


The euro has been unable to continue the traction it had from the strong bull candle on Friday. The last two candles have found resistance around $1.990 and again early this morning the price has dropped away slightly. I have been looking at the market using rallies as a chance to sell and the next lower high coming in between $1.0950/$1.1050. There is little that has occurred so far to change my view. The RSI is failing in its recovery under 50 and whilst the Stochastics are rising, there is still a feeling that this is another bear rally. The hourly chart does reflect the recent improvement but the impetus has just been lost from the rally for the time being, with the hourly MACD lines tepid. Watch for the hourly RSI dropping back below 40 as a possible sign of deterioration again. Initial support at $1.0935 will be watched too as this is yesterday’s reaction low and a close back below the old support at $1.0950 would also suggest the bears regaining the momentum again. I continue to expect a retest of $1.0850. A move above $1.1050 would be needed to change the outlook to any sustainable degree.

See the charts and read the full article on Hantec Markets website.

Tuesday, 01 Nov, 2016 / 9:28

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