Japan's manufacturing industry under pressure

Forex News and Events

Japan Manufacturing PMI shrinks (by Yann Quelenn)

Difficulties continue for Japan as the preliminary data for the Nikkei Japan PMI Manufacturing fell to 49.1 for March from 50.1 a month earlier. It is now below the 50-point mark which separates contraction from expansion. Manufacturing activity has not shrunk in almost a year, however, new export orders, having declined strongly to 45.9 from 49.0, are largely responsible for Japan’s manufacturing weakness and this should continue as the global economy is clearly slowing down. In particular global demand is heading south and this is increasing downside pressures on consumer spending and as a result on inflation which in our opinion will never reach the BoJ target of 2%.

The willingness of the BOJ to drive inflation higher is irrelevant as the global environment will prevent any monetary policy from being effective. Japan is capable of increasing consumer spending but if its exports keep on falling, the overall results will not have the desired effect. Japan’s strength is their control of their central bank, meaning they can print as much money as they need and underpin the equities bubble as well as create ‘superficial’ growth from scratch. We are bearish on the USDJPY and believe that the safe haven effect is likely to increase despite massive overflows of money from the BoJ. Confidence is still on the central bank’s side even if debt is massive and continues to mount.

AD subject to downside risk (by Peter Rosenstreich)

Risk appetite faded in the Asian session following San Francisco Fed President Williams and Atlanta Fed President Lockhart hawkish comments. As expected both Fed presidents provided statement which suggest that a rake hike remains on the table at the April of June FOMC meeting. The shifting of the US rate curves will continue to put pressure on risk sentiment. In Australia, RBA Governor Stevens sounded surprisingly positive on the economy despite the volatility in commodity prices. He then went on to provide the typical verbal intervention on potential further monetary easing and risk that the AUD has gotten to strong given the economic backdrop. However, the markets only heard the message on the strong economic and quickly bid up AUD. Given the disappointing Chinese data in January and February we suspect that anticipation of a Chinese recovery needs to be slightly postponed. Failure of Chinese data to post meaning improvement suggests that the recent AUD rally is overbaked. Elsewhere Australian Q4 house prices slowed to 0.2% from 2.0%.

Gold - Targeting 1300 !!

The Risk Today

Yann Quelenn

EUR/USD has broken short-term uptrend channel. Yet, hourly resistance still lies at 1.1376 (11/02/2016 high). Hourly support is given at 1.1189 (intraday low) while stronger support is located a 1.1058 (16/03/2016 low). Expected to show continued weakness. In the longer term, the technical structure favours a bearish bias as long as resistance at 1.1746 ( holds. Key resistance is located region at 1.1453 (range high) and 1.1640 (11/11/2005 low) is likely to cap any price appreciation. The current technical deteriorations favours a gradual decline towards the support at 1.0504 (21/03/2003 low).

GBP/USD is still consolidating after last week's sharp increase. Yet, the technical structure is still showing a medium-term bearish momentum. Hourly resistance is given at 1.4514 (18/03/2016 high) while hourly support can be found at 1.4222 (17/03/2016 low). A break of strong resistance at 1.4668 (04/02/2016) is needed to show a reverse in the short-term momentum. The long-term technical pattern is negative and favours a further decline towards key support at 1.3503 (23/01/2009 low), as long as prices remain below the resistance at 1.5340/64 (04/11/2015 low see also the 200 day moving average). However, the general oversold conditions and the recent pick-up in buying interest pave the way for a rebound.

USD/JPY's medium term momentum is clearly negative. Yet, on the short-term, the pair is clearly trading mixed. Hourly resistance is given at 112.96 (17/03/2016 high). Stronger resistance is given at 114.91 (16/02/2016 high). Hourly support is given at 110.67 (17/03/2016 low). Expected to see further consolidation. We favour a long-term bearish bias. Support at 105.23 (15/10/2014 low) is on target. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems now less likely. Another key support can be found at 105.23 (15/10/2014 low).

USD/CHF is now consolidating after it lost two figures last week. The short-term momentum is clearly bearish. Hourly support can be found at 0.9651 (11/02/2016 low). Hourly resistance is located at 0.9913 (16/03/2016 high). Expected to show further consolidation In the long-term, the pair is setting highs since mid-2015. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours a long term bullish bias.

Resistance and Support: