For once, it has been the turn of the FX markets to take centre stage on Monday, on the back of some positive manufacturing and services PMI figures which indicated that US business activity expanded at the fastest rate in more than 5 years in November, and the quickest acceleration in manufacturing since September 2014. While stocks reacted quietly, but positively, to the news, the US$ turned sharply higher after having looked increasingly heavy early in the session, as crowded US$ short positions were squeezed by the aggressive move.
Sterling had lead the early move to the topside, underpinned by positive news from Oxford University regarding its Covid vaccine results – and backed up by the statement for UK PM Boris Johnson that the UK lockdown conditions are set to be eased before Christmas. All the major currencies followed Cable’s lead in placing the US$ under pressure ahead of the US data, which then caused the sharp turnaround in circumstances. However the major trend resistance in multiple currency pairs, pointed out in the weekend video, https://www.youtube.com/watch?v=Mo3IdPRtsR4 , has held – so far – and in the short term at least, further mild dollar strength may be in store. The other US$/major pairs saw the Euro reach a high of 1.1905 before falling sharply to 1.1799, while US$Jpy spiked from 103.65 to 104.65 and is now back in the middle of its previous range. Likewise the Aud$ was unable to overcome strong selling interest at 0.7340 and is now back at 0.7285, while, of particular interest, the NZ$ made a new 18 month high, reaching 0.6967 before turning lower to currently sit at 0.6925, although it has been a stand- out performer for the month in posting gains of 5% through November.
Stocks were rather more circumspect about the data but have squeezed higher into the end of the session with the DJI up by 1.15% and the S+P and Nasdaq up by around 0.5%/0.25%.
In other markets, the main interest was in Gold, which finally broke below important support at 1850 and headed quickly to a low of 1830, and looks as though a run to 1800 could be on the cards. Silver fared even worse, down 2.25% on the day, to 23.65, while oil (WTI) once again ran into strong resistance at 43.30 but is beginning to look as though it may be in for a more concerted move higher.
In terms of the numbers, the Markit US manufacturing index climbed to 56.7 from 53.4 in October, above expectations of 53, while the services index came in at 57.7, the highest since April 2015, and up from 56.9 in October, against expectations of 55.0.
Earlier, from Europe, the Eurozone PMI Manufacturing dropped to 53.6 in November, down from 54.8, a 3-month low but above expectation of 53.1 while the Services figure dropped to 41.3, down from 46.9, a 6-month low and missed expectation of 42.5. The Composite reading dropped to 45.1, down from 50.0, also a 6-month low.
For the individual nations, the German Manufacturing figure dropped to 57.9, down from October’s 58.2 but above expectation of 56.5. The Services figure dropped to 46.2, down from 49.6, a 6-month low but in line with expectations of 46.3. The Composite figure dropped to 52.0, down from 55.0, a 5-month low.
In France, Manufacturing figure dropped to 49.1 in November, down from October’s 51.3 and missed expectations of 50.1, while the services reading fell to 38.0, down from 46.5, in line with the expectations. The Composite figure dropped to 39.9, down from 47.5, new 6-month lows
The UK Manufacturing figures rose to 55.2 in November, up from October’s 53.7 and well above expectation of 50.5, and hit a 3-month high. On the other hand, the Services reading dropped sharply to 45.8, down from 51.4, a 6-month low although beating the expectation of 42.5. The UK Composite figure fell to 47.4, down from 52.1, a 6-month low.
As I said in the weekend video, I particularly like the ASX, and the index was assisted yesterday by the release of the Australian CBA PMIs. The Australia manufacturing PMI surged to 56.1 in November, up from 54.2, a 35-month high., while the services figure rose to 54.9, up from 53.7, a 4-month high, meaning that the Composite figure was well underpinned and rose to 54.7, up from 53.5, also a 4-month high.
Tuesday will be a thin day for data with just a speech from the RBA’s Guy Debelle being of any interest in the Asian time zone. The German Q3 GDP (exp +8.2%qq, -4.3%yy) and the German IFO; Business Climate/Current Assessment/Expectations, will be the European highlights. Tthe US will deal with the November Richmond Fed Mfg Index (exp 29, prior;29), Consumer Confidence (exp 98; prior 100.09), the September Case Shiller House Price Index (exp 5%) and API Weekly Crude Oil Stock Inventory. Central Bank Speakers through the day will include, Haskell, (BOE), Schnabel (ECB), Kuroda (BOJ, Williams, Clarida (Fed)
Economic data highlights will include:
Tue: Australian RBA’s Debelle Speech, German GDP, German IFO; Business Climate/Current Assessment/Expectations , BOJ’s Kuroda Speech, BOE’s Haskell Speech, US Case Shiller House Price Index, House Price Index, Consumer Confidence, Richmond Fed Mfg Index, Fed Speaker; Williams, API Weekly Crude Oil Stock Inventory
Market moves, in brief:
FX: DXY 92.48 (+0.13%)
Bonds: US10Y; 0.855% (+3.35%), German 10Y; -0.579% (+0.89%), UK 10Y; 0.319% (+6.37%), Australian 10Y; 0.862% (-1.43%), NZ 10Y; 808% (-1.08 %), China 10Y; 3.285% (-0.12%)
Stock Indices: DJI; +1.15%, S+P; +0.56%, NASDAQ; +0.22%, EUStoxx50; -0.13%, FTSE100; -0.28%, Shanghai Composite; +1.09%, ASX200SPI: +0.40%
Metals: Gold $1840 oz (-1.65%), Silver $23.65 oz (-2.25%), Copper $3.2715 lb (-0.60%), Iron Ore $123.57 per tonne (NYMEX) (-0.16%),
Oil: WTI $42.90pb (+1.12%)
Trend Table: November 24, 2020
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In the trend table below, when looking at the charts for a particular FX pair, index or commodity, we are we searching for 2 or 3 consecutive boxes of the same colour which might indicate a trend – and a possible trading opportunity. Consecutive (1 & 4 hour, 4 hour/daily, daily/weekly) green boxes indicate a possible short/medium/long term uptrend; red, a possible downtrend, while blue signifies a neutral bias (range trade possibility). The boxes on the trend table merely replicate the look of the charts for the specific time-frame in MT4/5. Assets with a mixture of colours are pretty much ignored as choppy conditions seem likely to prevail.
For instance, if we see consecutive green boxes in the 1 hour and 4 hour time-frames for the FX pair “EURUSD”, that would signify the chance of a move higher in that pair over the next 24 hours. If the dailies were also green that would add to the bullish conviction from a slightly longer term perspective, and if the weeklies are also green then it would give added credence to the longer term bullish view, albeit that it might take longer for the trend to play out, so patience will almost certainly be required. The opposite would be true of red boxes, which could signify downward momentum. The strength of any possible trend depends on the time-frame, with the longer term (daily, weekly charts) obviously having a greater overall weighting than the short-term charts.
In the near term though, the 1 and 4 hour charts are what are likely to combine to indicate the possibility of a trading idea for the next few, possibly up to 24, hours.
Note that a longer term bullish view (green daily/weekly boxes) does not discount the possibility of near term dips (i.e. Red 1 & 4 hour boxes), which may indicate near term weakness and suggesting that we should be looking to buy dips for a longer term rally – and vice versa if the near term boxes are green and the longer term; red.
|1 Hour||Turning Lower?||Up||Down||Neutral – Turning Higher?||Turning Lower||Turning Lower|
|4 Hour||Turning Neutral||Turning Higher||Neutral – Turning Lower?||Turning Neutral||Neutral – Turning Lower?||Neutral – Turning Lower?|
|1 Day||Turning Neutral||Neutral – Turning Higher?||Neutral – Turning Higher?||Neutral||Turning Neutral||Possible Topping Formation|
|1 Week||Neutral – Turning Lower?||Turning Neutral||Neutral – Turning Higher?||Turning Higher?||Neutral – Turning Higher?||Turning Higher|
|1 Hour||Up||Neutral||Turning Neutral||Down||Turning Lower||Neutral – Turning Lower?|
|4 Hour||Neutral – Turning Higher?||Turning Neutral||Turning Neutral||Turning Lower||Neutral – Turning Lower?||Neutral – Turning Higher?|
|1 Day||Turning Neutral||Turning Neutral||Turning Higher||Neutral – Turning Lower?||Turning Neutral||Neutral – Turning Higher?|
|1 Week||Possible Basing Formation||Up – Overbought||Up||Down||Down||Neutral|
|1 Hour||Turning Higher?||Neutral – Turning Higher?||Turning Higher?||Turning Neutral||Neutral – Turning Higher?||Turning Neutral|
|4 Hour||Turning Higher?||Turning Lower?||Neutral – Turning Higher?||Neutral – Turning Higher?||Turning Neutral||Bullish Divergence|
|1 Day||Turning Neutral||Turning Neutral||Turning Neutral||Turning Neutral||Turning Neutral||Turning Lower?|
|1 Week||Neutral – Turning Lower?||Neutral – Turning Lower?||Turning Neutral||Turning Neutral||Turning Neutral||Turning Lower|
The turnaround in the US$ on Monday could see further mild US$ strength against its major counterparts, as shorts get squeezed in an overcrowded market although the longer term outlook still suggest that the dollar will remain under pressure, so buying dips in the Euro, Gbp, Aud, Nzd etc is still preferred from a strategic stance. For today, another test of 1.1800 in the Euro would not surprise although 1.1800/1.1900 may well cover it. Similarly, Cable may trade within 1.3380/1.3280, while AudUsd seems to be within 0.7240/0.7340 and the Kiwi 0.6870/0.6970.
As I said before (see video – link above), all the majors are up against long term and strong resistance against the US$ and they seem unlikley to break higher as the US winds down for the Thanksgiving long weekend. Eventually though, I suspect we are going to see quite a move higher for the major currencies, possibly led by Sterling (positive Brexit headlines?), or it may be through general US$ weakness as the Biden administration takes the reigns of the US economy in the New Year.
Stocks are squeezing slowly higher and may continue to do so. I like to be long, especially the ASX, but I would not be surprised to see a bit of a setback in the US markets, towards 3500 for the S+P, which would I think provide a buying opportunity.
Gold looks as though it may want to look at 1800, while WTI may be on the point of a sterner test of 43/44. An eventual break of this will, I suspect then allow a run towards 50/55.
ASX SPI: Daily