Chinese data started off this current week positively. In the early hours of last Monday’s session Chinese PMI manufacturing data (essentially a health check of China’s manufacturing sector) showed a steadying pace with the actual figure out at 50.5, compared to a previous 49.5. The data is for November and apart from improving on the previously stated figure one should note that the index climbed back to over 50 territory. This rise marks a swing from contraction (under 50) to growth (over 50).

The impasse on the US’s fiscal cliff is capping USD moves- Rudolf Muscat

Whether it is just a short-term effect due to upcoming Christmas orders or whether a longer-term trend remains to be seen however.

The euro has remained buoyed averaging 0.20 per cent gains (overall) in the former part of this week; despite it did cede part of its gains when compared to the JPY and GBP.

The euro has showed resilience in that it shrugged off an ESM bailout programme downgrade by Moody’s last Friday. Moody’s slashed ESM’s AAA rating to Aa1. From Europe we also had the eurozone publishing its PMI manufacturing for November. The final reading showed that the region’s manufacturing sector remained in contraction for a 16th month, as the debt crisis leaves its toll on the 17 eurozone nations. The actual figure was out at 46.2 (still in contraction), yet at least it was stronger that October’s final reading at 45.4.

The support for the single currency proved to be more long lasting than originally anticipated. The deal reached on November 26 over Greek aid has been fuelling support for the euro for most of the past two-and-a-half weeks. Analysts were not expecting support to be very long lasting, given that most of it had already been priced in ahead of the final decision. However, analyst’s anticipations were more precise when it came to price levels.

On the daily time frame, the EUR/USD currency pair remains bound within a bearish trend line that has held upward price movements since May 1, 2012. Based on this resistance level we anticipate that price moves higher should remain capped by 1.3106 region. What we should watch out for is a daily close above this level, which if materialised could indicate more upward momentum possibly targeting 1.3140/1.3175; these levels are respectively October and September highs.

While close to flat against the CHF and the CAD, the US dollar remained negative averaging -0.33 per cent, when seen against the rest of the major currencies. The impasse on the US’s fiscal cliff is capping USD moves, while still unconcluded the sentiment over the possible outcome remained slightly tilted towards the positive.

Last Thursday the second estimate of US Q3 GDP surprised positively because it was revised up to 2.7 per cent, up from the advance reading of two per cent. US ISM manufacturing for November, issued earlier this week, slipped into contraction down from a 51.7 in October to 49.5 and disappointing expectations for a 51.4 reading.

In the former part of this week the British pound was registering gains across all of the majors, up an average +0.36 per cent overall. Apart from the news that a new royal highness is on the way, the United Kingdom also reported its PMI manufacturing data for November which came out stronger than previous readings, despite it remained just below 50 level delineating contraction from growth.

In a widely anticipated move, the Reserve Bank of Australia announced its decision to cut its policy rate by 25bp to an effective rate of three per cent from the previous 3.25 per cent. The decision came a day ahead of the expected announcement of the third quarter GDP, that was due last Wednesday – ahead of the release it was expected that Q/Q third quarter GDP would be confirmed at 0.6 per cent.

The Bank of Canada was due for an interest rate decision last Tuesday. The Canadian Central Bank in the end decided to stay on hold and to make no changes to its current one per cent rate.

Ahead of us today we have to important announcements from the ECB and BoE, both central banks are expected to stay on hold. As we edge deeper into the festive season and end of year, expect volumes to dwindle and price trading to tend within a range as opposed to marking a clear trend.

Upcoming FX key events
Today: EZ Q3 GDP, ECB and BoE interest rate decision.
Tomorrow: US Non-Farm Payrolls, US Michigan Confidence Index and Canadian unemployment rate.

Technical key points
EUR/USD is neutral.
EUR/GBP is bullish target 0.8220, key reversal point 0.7950.
USD/JPY is bullish, target 0.83, key reversal point 79.25.
GBP/USD is bearish target 1.5965 key reversal point 1.6175.
USD/CHF is neutral.
AUD/USD is neutral.
NZD/USD is neutral.

trading@rtfx.com

RTFX Ltd is licensed to conduct investment services business by the Malta Financial Services Authority. This information does not constitute an offer or solicitation and is provided for information purposes only. This information shall not be deemed to constitute advice and should not be relied on as such to enter into a transaction or for any investment decision. Any opinions expressed in this document represent the views of RTFX at the time of preparation. They are subject to change without notice. RTFX believes that the information contained herein is accurate as at the date of publication. No warranty of accuracy is given by RTFX and no liability in respect of any errors or omissions, including any third party liability, are accepted by RTFX or any director, officer or employee.

Rudolf Muscat is a senior trader at RTFX Ltd.

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