China's PMI surprises to the upside

Forex News and Events

China’s economy stabilises amid stimulus and weak yuan (by Arnaud Masset)

According to official data, activity in the manufacturing sector expanded more than expected in November, suggesting that the acceleration in the manufacturing industry is finally happening. The official purchasing manager index printed at 51.7 in November, beating median forecast of 51.0 and above previous month’s reading of 51.2. The good news came on the back of a continuous debasement of the yuan, which fell another 2% against the greenback over the last five weeks with USD/CHN hitting 6.9650, and an easier access to credit. The non-manufacturing gauge accelerated to 54.7 from 54.0 in October.

On the other hand, the Caixin manufacturing PMI measure eased to 50.9 from 51.2 in October and below estimates of 51.0, may suggest that the recovery is not as strong as reflected by the official data. However, the gauge is still above the 50 mark, which separates contraction from extension. All in all, we think that one should not get carried away by the encouraging official statistics as there are some dark clouds on the horizon as Trump is about to take office. USD/CNH eased to 6.90 this morning after hitting 6.9654 last week. Even though we expect further stabilisation in the yuan, we do not think it is time to lower our guard as the big picture is not that bright.

OPEC agrees on an output cut deal (by Yann Quelenn)

In eight years OPEC has never managed to reach an agreement on an output deal. Finally, contrary to our expectations, a deal has been struck. There are nonetheless several things to say about this deal which is far from perfect. Firstly, we believe that the real impetus was saving OPEC’s credibility. After eight years of disagreement, an image of mistrust between members could have posed a major risk to the reputation of the intergovernmental organisation.

That said, markets appreciated the deal, and even Russia, a non-OPEC member, also agreed to cut its production by 300’000 barrels a day. A barrel of Brent increased by 10% and closed above $52.

In our report yesterday, we highlighted Iraq and Iran’s growing challenge to Saudi Arabia’s dominance in the cartel. This challenge is now all the more obvious following Tehran’s decision to not cut its output, which it actually raised to 3.8 million barrels a day - not exactly what Saudi Arabia had in mind from its neighbour. This is a significant victory for Iran which has lost market shares due to Western sanctions.

Oil inventories remain very large and we believe that the cut decided at the meeting is likely not to be sufficient to balance demand and supply. The output should be reduced by 1.2 million barrels per day starting in January. We remain nonetheless suspicious on whether the cut will be effective or not.

Unlikely winners are US Shale gas producers, which are now expected to rise in the medium-term.

USD/CHF - Short-Term Bullish.

 

Today's Key Issues	Country/GMT
Nov Manufacturing PMI, exp 52,5, last 52,7	NOK/08:00
Nov Markit Spain Manufacturing PMI, exp 53,7, last 53,3	EUR/08:15
Oct Retail Sales Real YoY, exp -2,20%, last -2,30%	CHF/08:15
Nov PMI Manufacturing, exp 54,4, last 54,7	CHF/08:30
Nov Markit/ADACI Italy Manufacturing PMI, exp 51,3, last 50,9	EUR/08:45
Nov F Markit France Manufacturing PMI, exp 51,5, last 51,5	EUR/08:50
Nov F Markit/BME Germany Manufacturing PMI, exp 54,4, last 54,4	EUR/08:55
Nov Barclays Manufacturing PMI, last 45,9	ZAR/09:00
Oct P Unemployment Rate, exp 11,60%, last 11,70%	EUR/09:00
Nov F Markit Eurozone Manufacturing PMI, exp 53,7, last 53,7	EUR/09:00
Nov Markit UK PMI Manufacturing SA, exp 54,4, last 54,3	GBP/09:30
Oct Unemployment Rate, exp 10,00%, last 10,00%	EUR/10:00
Nov Danish PMI Survey, last 54,4	DKK/10:00
nov..30 FGV CPI IPC-S, exp 0,21%, last 0,24%	BRL/10:00
3Q F GDP WDA QoQ, exp 0,30%, last 0,30%	EUR/10:00
3Q F GDP WDA YoY, exp 0,90%, last 0,90%	EUR/10:00
Oct Electricity Consumption YoY, last -0,70%	ZAR/11:00
Oct Electricity Production YoY, last 1,10%	ZAR/11:00
nov..25 Foreigners Net Stock Invest, last -$201m	TRY/11:30
nov..25 Foreigners Net Bond Invest, last -$372m	TRY/11:30
Nov Markit Brazil PMI Manufacturing, last 46,3	BRL/12:00
Oct MLI Leading Indicator MoM, last 0,30%	CAD/12:00
Nov Challenger Job Cuts YoY, last -39,10%	USD/12:30
nov..25 Gold and Forex Reserve, last 389.4b	RUB/13:00
ECB's Nowotny Speaks on Monetary Policy	EUR/13:00
Fed's Mester Gives Opening Remarks at Financial Stability Conf	USD/13:30
nov..26 Initial Jobless Claims, exp 253k, last 251k	USD/13:30
nov..19 Continuing Claims, exp 2033k, last 2043k	USD/13:30
Fed's Kaplan Speaks in San Antonio	USD/14:00
Nov RBC Canadian Manufacturing PMI, last 51,1	CAD/14:30
nov..27 Bloomberg Consumer Comfort, last 44,8	USD/14:45
Nov F Markit US Manufacturing PMI, exp 53,9, last 53,9	USD/14:45
Oct Construction Spending MoM, exp 0,60%, last -0,40%	USD/15:00
Nov ISM Manufacturing, exp 52,5, last 51,9	USD/15:00
Nov ISM Prices Paid, exp 54,5, last 54,5	USD/15:00
Nov ISM New Orders, last 52,1	USD/15:00
Nov New Car Registrations YoY, last 9,75%	EUR/17:00
Nov Trade Balance Monthly, exp $3000m, last $2346m	BRL/17:00
Nov Exports Total, exp $14900m, last $13721m	BRL/17:00
Nov Imports Total, exp $11800m, last $11375m	BRL/17:00
Nov Vehicle Sales Fenabrave, last 159049	BRL/23:00

 

The Risk Today

Yann Quelenn

 EUR/USD's buying pressures increase. Hourly resistance is given at 1.0686 (29/11/2016 high). Support can be found at 1.0518 (17/11/2016 high). Expected to show renewed bearish pressures. In the longer term, the death cross indicates a further bearish bias despite the pair has increased since last December. Key resistance holds at 1.1714 (24/08/2015 high). Strong support given at 1.0458 (16/03/2015 low) is on target.

 GBP/USD is gaining momentum, even though the momentum is not enough yet resistance at 1.2674 (11/11/2016 high). Hourly support is given at 1.2302 (18/11/2016 low). Buying pressures don't seem sufficient. The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

USD/JPY's bullish momentum is definitely on. Resistance at 113.90 (25/11/2016 high) has been broken. The pair has bounced back on stronger resistance given at 114.87 (16/02/2016 high). Hourly support is given around 111.36 (28/11/2016 low). Stronger support lies at 108.56 (17/11/2016 low). Expected to see another upside move We favor a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

 USD/CHF remains in an uptrend channel. The technical structure bullish. Key support is given at the parity. Hourly resistance at 1.0192 (24/11/2016 high) has been broken. Expected to see further monitoring of the resistance area around 1.0200. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.

Resistance and Support:

EURUSD	GBPUSD	USDCHF	USDJPY
1.13	1.2857	1.1731	125.86
1.1259	1.2771	1.0328	121.69
1.0954	1.2674	1.0257	114.87
1.0627	1.2547	1.0137	114.26
1.0521	1.2302	0.9929	109.8
1.0458	1.2083	0.9632	108.56
1	1.1841	0.9522	106.14