Markets Cautious After ISM Report
ISM non-manufacturing index disappoints by dropping to 52.4 in Mar versus expectation of 55.0.
However, the price paid index surged to 63.3. Considered together with
a strong reading of (65.5) in the price component of ISM manufacturing index, pipeline inflation pressure in the US economy remains strong and is lifting the chance that core inflation will rebound further down the road. Meanwhile,
the employment component deteriorated to 50.8 which is raising some concern on the upcoming NFP report on Friday even though ADP employment report is close to expectation. Meanwhile, factory orders missed expectation and rose 1.0% only in Feb. After all, markets remain cautious ahead of key even risks of BoE rate decision tomorrow and NFP on Friday.
Markets have little reaction to solid data from Eurozone which saw Eurozone Service PMI at 57.4 in Mar, basically inline with expectation.UK Service PMI was a touch high than consensus at 57.6.
Eurozone Retail sales rose 0.3% mom only comparing to 0.5% consensus but yoy rate was at 1.2% due to upward revision in Jan. Germany factory orders rose 3.9% mom, 9.3% yoy, much better than expectation of 0.6%, 5.8%.
Aussie continues to regain ground and rose back to above 0.8150 level in early US session. Aussie was sold off after RBA kept rate unchanged at 6.25% today and postponed the act till getting Q1 inflation report. However, rates is still likely to rise and should the Q1 CPI inflation remains steady above 3%, RBA will likely raise rate in May.
GBP/USD
Daily Pivots: (S1) 1.9706; (P) 1.9764; (R1) 1.9799;
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Cable’s retreat from 1.9824 continues and as discussed before, with bearish divergence condition in 4 hours MACD and RSI , risk of a short term top has increased. However, a break below 1.9662 support is needed to indicate a short term top is formed first. Otherwise, further rise is still in favor. Break of 1.9824 high will confirm recent rally from 1.9183 has resumed for 1.9913 high.
Below 1.9662 will suggest that the whole rise from 1.9183 has completed and deeper correction should be seen towards 1.9545 support. However, downside should be contained by 1.9434 cluster support (1.9183 to 1.9824 at 1.9428).
In the bigger picture, rise from 1.8090 is still in progress after corrective fall from 1.9913, which should have completed with three waves down to 1.9183, was supported by 1.9215/17 cluster support (50% retracement of 1.8517 to 1.9913 at 1.9215, 38.2% retracement of 1.8090 to 1.9913 at 1.9217). The rise from there should represent resumption the whole rally from 1.8090 and hence further upside is expected.
However, with bearish divergence conditions being displayed in weekly RSI and daily MACD a medium term top could be around the corner. The up trend from 1.7047 could make a top after reaching 2.0046/0106 cluster resistance zone (1992 high, 100% projection of 17047 to 1.9024 from 1.8090 at 2.0067, 61.8% projection of 1.8517 to 1.9913 from 1.9183 at 2.0046. And hence, focus will be on reversal signal as cable approaches these levels.
Read full report (EUR/USD, GBP/USD, USD/CHF, USD/JPY, EUR/JPY) here.
Shing-Ip Tsui is the founder and CEO of
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