Risk assets managed to make a run higher yesterday as markets received a positive surprise from European manufacturing data, leading to analyst speculation that the worst of the current economic turmoil in the region is now behind us. Also seen supporting this was an array of similar releases from both China and Australia which were also higher than market expectations. What should be remembered, however, is that these expectations were still relatively low relative to historical averages, so these latest rallies will still be viewed by many as questionable at best (and also as new selling opportunities for equity markets). The numbers out of Europe did beat market estimates but are still below the key 50 level which signals expansion.
Part of this latest optimism is coming as a result of Wednesday’s weaker economic data from the US, which led many to believe that we would see similar results in other regions. The stronger numbers out of Europe helped calm some of these fears and confirmation of this improvement globally was seen during the Asian session. In the US, the ISM manufacturing survey and the ADP employment report were seen lower and this has also led to downward revisions in the estimates for the next US Non Farm Payrolls numbers. This release will once again be the main event to close the week as positions are squared into the beginning of the New York session on Friday.
Asian stock markets were higher on the Chinese macro releases and the improved corporate earnings report from Nomura Holdings, which helped push financials higher in the Nikkei 225. In Australian markets, export companies were seen higher after the country’s Trade Balance for December showed a rebound, as the trade surplus is now measured at 1.7 billion Australian Dollars (AUD), from 1.3 billion AUD previously. Part of the explanation for the rise in the commodity-rich nation came from the latest rise in gold prices and coal exports, and this was aided by a 1 percent decrease in the country’s total imports.
Last, currency traders should be paying special attention to central bank intervention rhetoric from both Japan and Switzerland, as we are currently approaching critical levels in some of the most closely watched forex pairs. Specifically, these are thought to exist at the 75 region in the USD/JPY and the 1.20 level in the EUR/CHF. The Swiss Franc could be the most worrisome for the country at this stage, as we have seen lows of 1.2030 and if end of week volatility pushes prices any closer to the SNB price floor, the central bank might have no choice but to furiously sell-off its currency.
The EUR/GBP is trading within some very clearly defined support and resistance levels, with the first areas to watch coming in at 0.8340 on the upside and 0.83 on the downside. This pair generally shows lower volatility levels, so this range is not as tight as it might seem at first glance. On the upside, the historical level matches nicely with the 50% Fibonacci retracement of the latest declines but with the MACD caught in neutral territory, we could be caught in this range for the rest of this week.
The FTSE 100 is caught in a range on the hourly charts but we are starting to see prices roll over on approach of resistance at 5760. This is a level we have been watching for some time now but we have not yet seen a convincing break here, which is what will be needed for the bullish momentum to continue. Short term players can try sell positions here but be aggressive with profit targets, as the longer term bias is for a break here given that we have not seen anything resembling a strong rejection from these levels.