الخميس، 27 سبتمبر، 2012

Softer China HSBC Manufacturing PMIs Open Fresh Wave of Risk Liquidation

  • China PMI results open risk liquidation
  • Commodity bloc and emerging market FX exposed
  • Global equities also at risk for more sizable pullbacks
  • ECB Draghi leaves door open for additional accommodation
Risk correlated currencies have come under intensified pressure into Thursday, with these markets responding to the disappointing China HSBC flash manufacturing PMIs which were well below the 50 boom/bust level. The data sends a message to investors that one of the world’s fastest growing economies is cooling off at a more rapid rate than had been anticipated and could result in another phase of the global recession. We have been projecting this third phase of the global crisis for some time now and have been recommending a liquidation of some of the more correlated markets to the Chinese economy. From here, we forecast relative underperformance in the commodity bloc and emerging market FX, and see cross rates like EUR/AUD benefiting tremendously from the latest deterioration in China.
Global equities are also exposed to these latest developments and we are already seeing signs of some topping in 2012 across all of the major equity markets. Elsewhere, although the Euro has pulled back only a little from near 1.3300 levels, the market should remain well offered on rallies, particularly in light of the latest ECB Draghi comments in which the central banker said that ECB loans will not lead to inflation. These comments suggest that there still could be room for additional accommodation from the ECB going forward. Fed Chairman Ben Bernanke’s remarks from yesterday could also inspire some fresh offers in the Euro. Bernanke said that “further strengthening of the European banking system” would be required as the region faces the risks of a prolonged recession.

ECONOMIC CALENDAR
TECHNICAL OUTLOOK
EUR/USD: The market has been well supported on the latest dip towards key support at 1.2975 and the subsequent bounce back above 1.3100 delays bearish prospects and opens the door for additional consolidation over the coming days. The key levels to watch above and below come in by 1.3315 and 1.2975 respectively and a break and close above or below will be required for clearer directional bias. In the interim we remain sidelined.
USD/JPY: The market is doing a good job of showing the potential for the formation of a major cyclical bottom after closing above the weekly Ichimoku cloud for the fist time since July 2007. This further solidifies basing prospects and we could be in the process of seeing a major bullish structural shift that exposes a move towards 85.00-90.00 over the coming weeks. At this point, only back under 77.00 would delay outlook and give reason for concern. However, in the interim, it is worth noting that gains beyond 84.00 over the coming sessions could prove hard to come by with shorter-term technical studies needing to unwind from their most overbought levels in over 10 years before a bullish continuation. As such, we would caution buying breaks above 84.00 for the time being and instead recommend looking for opportunities to buy on dips towards 80.00-82.00.
GBP/USD: The market has been mostly confined to trade between the 100 and 200-Day SMAs since early February and until we see a clear break on either end, we will continue to see some choppy range trade. Key levels to watch above and below come in by 1.6000 and 1.5600 respectively and we will wait for a break on either end to establish a clearer directional bias.
USD/CHF: Setbacks have stalled for now just ahead of 0.8900 and the market could finally be looking to carve the next medium-term higher low ahead of a bullish resumption and eventual break back above 0.9660. The latest break back above 0.9300 helps to confirm bullish outlook and should now inspire further gains over the coming days. Ultimately, only a drop below 0.8930 negates and gives reason for pause.

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