USD Soft After ISM, GBP & AUD Ride on Rate Speculations
Dollar weakens mildly in early US session after ISM Manufacturing index came in slightly below expectation. However it’s still kept in recent established range against Euro and
Yen as market lacks clear direction for the greenback. ISM Manufacturing index dropped from 52.3 to 50.9 in Mar comparing to expectation of 51.5. Looking into the details, Employment index fell back to below 50 at 48.7 from 51.1, and being lowest since May 05. This raises come concern on the upcoming NFP on
Friday. On the other hand, pride paid index surged further to 65.5, suggesting that potential pipeline pressures from energy and commodities that could be passed on to the consumers later this year.
Earlier, markets have little reaction to modestly disappointing manufacturing data from Germany, Eurozone and UK. Instead, rate speculations dominate and push Sterling and Aussie higher. Aussie was supported by stronger than expected retail sales data today that prompts further speculation that RBA will hike this week. Though, opinion is still divided as some economists expect RBA will opt to wait until the first quarter CPI results are released towards the end of the month so that they can be absolutely sure that further tightening is needed. The chance for a move this week is still 50/50. But believe that even if RBA is on hold, Aussie’s strength could still continue if RBA issues a hawkish statement.
On the other hand, the picture in Sterling is a little tricky. We’ve mentioned the possibility of a surprise from BoE in our weekly report that could resemble that case in Jan when expectation was on a Feb hike. However, it now seems that everybody is talking a surprise from BoE too. And, when everybody thinks there’ll be a surprise, it won’t be a surprise any more. The strength in Sterling will still likely continue leading to the BoE announcement. But in case of a disappointment, that is, “no surprise”, Sterling will likely be pressured. An in case of a surprise, Sterling could also be pressured as the speculation finally come true, i.e., buy on rumors sell on news. So, beware.
GBP/USD
Daily Pivots: (S1) 1.9576; (P) 1.9646; (R1) 1.9746;
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Cable’s rally from 1.9183 resumes by breaking above 1.9726 resistance and is now pressing 1.98 level. At this point, intraday bias remains on the upside as long as cable stays above 1.9725 minor support and further rise should be seen to retest 1.9913 high. Touching of 1.9725 will turn intraday outlook consolidative first but downside should be contained well above 1.9545 low and bring rise resumption.
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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