Review: Positive surprises from China and the US
China’s PMI came to 50.4 against the expected level of 49.5. Not only was this a positive surprise, the figure was also above 50, which is the first time in 13 months.
PMI in the US came to 52.4, against the expected 51. Hence appetite for investment increased once again.
Fitch downgraded its credit rating of Cyprus from BB+ to BB- with negative outlook.
There was widespread agreement among the Bank of England members to postpone further QE. This is positive for GBPUSD, but will it suffice to cause a breach above 160 once again?
Hamas and Israel have agreed on a ceasefire.
The downgrade of France’s credit rating did not have any considerable effect on the yields on the country’s government bonds. The reason is that one rating agency still gives the country an AAA rating and that the EU is about to approve changes that will allow the member countries to have the credit rating of the best rated country.
Most likely, following yesterday’s EU summit, investors will be sceptical until Monday.
Market sentiment: Relief because of PMI data from China, the US and hopefully the EU. Following the positive PMI data released over the past 24 hours, the sentiment has turned from slightly negative to slightly positive. The positive sentiment may be strengthened next week if the EU and the IMF can again find agreement. Keep an eye on:
Greece. Will the country receive more money or is it time for ‘Grexit’?
The EU politicians were not able to agree on the payment of the next loan tranche. A decision is to be expected on Monday, 26 November.
Is the crisis in Europe about to spread? Is the European rescue fund about to lose its AAA rating - practically before it has come into operation?
Today’s events: Focus on PMI data from the EU.
EU summit. Can the EU agree on the 2020 budget? Will the UK issue a veto?
EURUSD (SELL): The EU summit is expected to put pressure to the downside. We recommend short-term SELL of EURUSD with stop/loss at 128.84.
Yesterday EURUSD traded in positive territory despite some negative undertone. The market was characterised by quite a lot of commercial trading that had to be settled before Thanksgiving.
Today’s EU summit is not expected to result in any results – neither a joint EU budget for 2020 nor results in respect of Greece. And given the SELL recommendation for EURUSD, we signal that EUR will see negative focus within the next week. In the event of a daily close above 128.80, we will change our short-term negative expectations.
Resistance and support:
Downside: Breach below 126.05 paves the way towards 124.75 and then 120.50.
Upside: Breach above 128.50-128.80 will pave the way for a movement up towards 131.
EURJPY (NEUTRAL): Bank of Japan enters the election campaign. The election campaign has begun and the leader of the opposition, Shinzo Abe, has not been hesitant about demanding further quantitative easing on the part of the Bank of Japan. The opposition wants to curb the independency of the central bank and hence strengthen the political influence on the central bank's decisions.
The central bank fights back and signalled strong resistance to the opposition's ideas and it recommends that the opposition respects the independence of the central bank.
So far, the opposition leader - Abe – has gained much respect, and as the puts it himself: Since I began to demand initiatives to weaken JPY, the currency has fallen by 5% against EUR and 4% against USD.
The chart shows that EURJPY has breached both the grey and the black trend line; now only the strong red trend line from 2009 holds firm. A breach above 106.50 will most likely intensify the weakening of JPY.
Resistance and support:
Downside: A breach below 103.30 paves the way towards 102.21 and then 100.50.
Upside: A breach above 106.50 will pave the way towards 107.80, which offers slight resistance. Then 111.