Manufacturing sector is getting smaller in Europe

Forex Signals US Session Brief, Jan 2 – Manufacturing Remains in Deep Recession in Europe, Despite a Small Improvement in December

Posted Thursday, January 2, 2020 by
Skerdian Meta • 3 min read

Markets were quite uncertain what to do after the UK elections and the agreement on the Phase One trade deal between US and China, which will be official soon. After the initial optimism, traders came back with their feet on the ground, realizing that both events weren’t going to change much, hence the quiet price action for a few weeks, leading to the last week of 2019. Cash flows affected markets in the last week and markets turned against the USD, with money flowing particularly towards safe havens, such as GOLD . Today, it seems like markets are trading the sentiment once again, which seems positive, as risk assets climb higher while safe havens have been retreating.

We had the final manufacturing reports being released from Europe today. The figures for December showed a slight improvement, but manufacturing remained deep in contraction nonetheless. Certain ECB members have been pointing to an economic recovery, after some green shoots we have seen in the data recently, but the improvement has been pretty anemic and today’s manufacturing reports show just that. It will be an uphill battle trying to turn the economy around, especially if US tariffs on European manufacturers start this year.

The European Session

  • Shanghai-London Stock Exchange Connection Has Been Suspended – Reuters reported that China temporarily suspended the Shanghai-London Stock Connect scheme. The report cites five sources familiar with the matter in saying that China has temporarily blocked cross-border listings between the Shanghai and London stock exchanges because of political tensions with Britain over the Hong Kong issue. Chinese foreign ministry said that they are not aware of specifics of stock link suspension. They didn’t comment on questions about Phase One trade deal signing either.

  • Eurozone Final Manufacturing PMI – Today’s final manufacturing reading from France, Germany and the Eurozone came a bit higher, than in the first reading, increasing 50.4, 43.7 and 47.5 points respectively. In Italy and Spain, manufacturing activity declined further, with the PMI indicator declining to 47.4 points from 47.5 in November and to 46.2 Spain from 47.6 points.

  • UK Manufacturing PMI – In UK, manufacturing ticked higher to 47.5 points, but that’s still recession. “The UK manufacturing sector took a turn for the worse at the end of 2019. Output fell at the quickest pace in seven-and-a-half years as new order inflows decreased and Brexit safety stocks were reduced. With demand weak and confidence remaining subdued, input purchasing was pared back sharply and jobs cut for the ninth successive month.

The US Session

  • US Initial Unemployment Claims – US weekly initial jobless claims came at 222K, against 220K expected. The previous week stood at was 222K but was revised higher to 224K. Continuing claims also came in higher at 1728K vs 1680K expected.
  • US Challenger Job Cuts – The US challenger job cuts for December came at -25.2%, down from 16.0% in November. Layoffs declined to 32.84k,down from 44.57k in November. This is another positive news for employment in the US.
  • US CB Consumer Confidence – The US CB consumer confidence was just released. Confidence was expected to jump to 128.0 points among the US consumer. it did improve to 126.5 points, from 125.5 previously, but it missed expectations nonetheless. Present situation also improved to 170.0 points, from 166.9 points last month. Expectations declined slightly though, to 97.4 points from 97.9 last month.

Trades in Sight

Bullish AUD/USD Again

  • The trend has ben bullish for more than 2 months
  • The upside has gaining further momentum
  • The 100 SMA is providing support
  • The pullback down seems complete
The 100 SMA is holding on the H1 chart

AUD/USD has been bullish since the beginning of this month, as the USD turned bearish, on softer US ISM manufacturing report, which showed that this sector fell deeper into contraction during November. The upside momentum faded and in the third week this pair retraced lower. But, the sentiment improved further after US and China agreed on Phase One deal, helping risk assets, such as the stock markets and commodity Dollars.

Last week, the USD tumbled lower ahead of the new year and as a result, AUD/USD turned even more bullish for about a week. Today though, we are seeing a pullback down in this pair, as USD finds some bids at last. But,t he 100 SMA (green) held the decline on the H1 chart and this pair bounced off that moving average earlier. The price is not exactly running away after the bounce, which has given us some time to open a buy signal now, hoping that the uptrend will resume soon.

In Conclusion

After trading the USD last week, as traders adjusted their positions for the new year and multinational corporations moved cash around where they need it, markets have returned to trading the sentiment. The report that China temporarily suspended the Shanghai-London Stock Connect scheme has dented the sentiment a bit, hence the decline in risk assets.

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