Yesterday, manufacturing strength around the globe from prompted a rally in the markets as investor focus was diverted from the European debt focus. Manufacturing data in the US grew at the fastest rate in seven months while manufacturing in the United Kingdom rose to an eight month high. Gauges of manufacturing in China also improved and manufacturing in Europe contracted less than expected. Manufacturing in China showed a modest expansion beating market expectations of a contraction. The USD weakened across the board and Treasuries stopped a five day rise. with The EUR is trading at 1.3130 while the GBP is currently trading at 1.5830.
Further aiding the positive market sentiment is the expectation that the Greek private sector debt swap deal and the nation’s second financing deal will be completed in the next few days. However, the longer the negotiations drag on, the greater the likelihood of an extended fall in the Euro. The strongest performers yesterday were the risk currencies. The Australian dollar has surged past 1.0700 while the Canadian dollar is once again trading above parity against the USD.
Equity markets powered ahead yesterday spurred by signs of manufacturing strength globally. The S&P 500 closed 0.9% higher at 1,394 with financial and commodity stocks leading the gains. Morgan Stanley rose more than 5% on news that it had won the lead manager role for the upcoming Facebook initial public offering. The appliance maker, Whirlpool, rose almost 20% as it projected higher than expected earnings. Asian stocks gained with the Hang Seng rising 2%. European stocks have lost earlier gains, falling from 6 month highs, as oil producers fell
Commodities News
Commodity prices moved lower yesterday with the CRB index losing 0.78 points to 311.53 with strength in the equity markets failing to spark a rally. WTI Crude continues to fall, down another 0.8% to $96.75 after the US Energy Department reported higher than expected inventories and gasoline demand fell to a 10 year low. Precious metals consolidated with gold steady $1,748 while silver has lost 0.7% to $33.57. Soft commodities were mixed while copper has given up 0.8%.
GOLD
GOLD continues to show strong price con-solidation to gain slightly to hold above $1,740. The range yesterday was $1,733 to $1,751. As we had expected gold had an attempt at the $1,750 resistance level a couple of times before easing back slightly to $1,743 this morning. The market is eyeing critical resistance just above $1,800 before a charge towards the all time high just above $1,900. Our end of second quarter target of USD2.000 on gold remains firmly in play. Gold is showing good price consolidation at the moment and a break out appears immi-nent. Nothing has happened overnight so we maintain our strongly bullish stance on gold in both the short and medium term,. We continue to hear of central bank diversification into the metal which continues to support and drive the price higher. Today, there will more than likely be a lull in liquidity and tightening of trading ranges as the market awaits tomorrow’s release of the US non farm payrolls data.
FX News
EURUSD
EUR/USD started the day in London paring gains made yesterday after better manufacturing data eased worries about global growth. The market was quite subdued until Chinese Premier Wen suggested the possibility of more involvement in the developments of the EFSF and the ESM as well as positive comments regarding the shared currency and the euro zone. This caused the euro to jump 50pips to 1.3198 before drifting back to where it started which was around 1.3130’ish. It just goes to show the volatility and sentiment of the market hungry for a clear direction. In the meantime it is quite entrenched within the range of 1.3020 1.3230. What may determine a breakout of this range will come from surprising data out of the US or solid news about the Greece deal. The best and only trading strategy may be to play within this range with stops on the breakout.
USDJPY
A range of about 15pips, 12 hours into the trading day suggests the nervousness of the market about possible intervention by the Bank of Japan. Those that are betting on intervention may be buying USD/JPY large just above 76.00 and those that don’t think it could happen are happy to sell at 76.25 on the back of the US not raising interest rates until 2014. 75.31 was where the last intervention happened back in Oct 31 and the market is thinking that BOJ might not come in until 75.50 is tested. Again Minister Azumi said he is prepared to take firm measures if necessary and that could be interpreted as maybe a solo effort from BOJ if it happens. Given U.S. Treasury expressed disapproval over Japan’s last solo intervention in October, the market is thinking BOJ may not pull the trigger until 75.30 is breached.
AUDUSD
AUD/USD was the big winner on the back of the better than expected data over the last 24 hours with equity markets preforming well also. The break above 1.635 top during early Europe trigger weak stops which gave enough fuel to the fire for the price to bounce and takeout the recent 1.0685 resistance. The buoyant markets and the love of AUD on better risk sentiment took the price above the 1.0700 level briefly with the pair topping out at 1.0740. US afternoon profit taking and posi-tion squaring as we lead into the quiet period before Fridays US non-farm Payrolls has seen the price move back to 1.0700 to close out the eventful day. Building Approval and Trade Balance data will make for an interesting morning with both expected to be below the previous. The current level of the AUD will find early morning covering from Australian Importers and with the price already likely to be below 1.0700 the weaker data could see it return to 1.0600 or below quickly.
Compass Global Markets
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