Risk Aversion and US Dollar weakness still the theme

Equity markets were on the retreat on Friday and the US Dollar took another leg lower against most peers. Despite evidence that growth in the Euro zone is picking up, the markets focused on the US sentiment figures, which revealed a drop in the Chicago PMI as well as a slight deterioration in the U. of Michigan indices. U of Michigan Inflation expectations came out a tad higher than expected. Crude Oil printed new 2016 highs, but have calmed down on Monday morning. In precious metals, gold also climbed to new 2016 highs and is eyeing the 2015 highs at 1308.

XAUUSD Daily – In new 2016 highs, next resistance at 2015 highs, favouring buying on dips on sustained risk aversion and USD-weakness.

20160205 XAUUSD.Daily

Entering this week, Asian trading has been following the theme with risk aversion and USD-weakness. China, Hong Kong were closed due to Labour Day and the UK will also be closed today for Early May Bank Holiday. This could imply that trading in the European session could be somewhat range-bound. Australian April AiG Manufacturing came out a tad lower than prior and confidence indicators also losing ground. Despite the lower than expected figures, the Australian index is up 0.1% this morning.  

In Europe, national Manufacturing indices have been mixed (Germany Italy and Spain showing expansion, while France came out lower than expected and in contraction). The Composite Euro zone PMI came out at 51.7, beating expectations at 51.5.

EURUSD took a leap higher on Friday and has this morning taken out recent highs at 1.1465, but has so far been rejected at 1.1480, slightly ahead of the October 2015 highs at 1.1495, where a break above would open up for a test of 1.1535-area before 2015 highs at 1.1715. Although daily oscillators are approaching overbought territory, there are no signs of divergence which should indicate a reversal yet. We are still favouring USD-shorts and will sell the US dollar in general on rallies.

EURUSD Daily – room for further upside.

20160205 EURUSD.Daily

The US session will be in focus with the release of the ISM Manufacturing figures for April as well as comments from NY Fed president Dudley as well as the San Francisco Fed President Williams.  While there are no signs of real changes to the ISM figures, the key will be whether or not the indices change from expansion to entering contraction (figure above/below 50). Regional PMIs have dipped lower, which will put a downward pressure on the overall figure, while the ISM Prices paid is expected to increase slightly.

S&P500 has been on the offer for the past 2 days with the 200 SMA on a 4h chart have provided support so far. The index is still in a bullish setup and we could need a close below 2035 to change the setup.

SP500 Daily – correction or reversal?

 20160205 US500Daily

Later in the week, RBA interest decision on Tuesday as well as the US Job report will be main points this week.

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