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Australian dollar moves higher even though China manufacturing PMI data contracts

The overnight session was mixed with data generally coming in below market expectations. The Australian economy fared better than market analysts had feared so this has been seen as a positive for the Aussie. Today is going to be quiet to start with but picking up into the US session as Tier-1 data comes in along with news from OPEC+

Market Brief

The first trading day of the month and the current forex outlook is for the London open to start the day risk-on. The Aussie has shown relative strength against its peers even as the Chinese Caixin Manufacturing PMI slipped into contraction. Though only marginal, it was the first time that business conditions had worsened since April 2020, with the index dipping to its lowest level for a year and a half.

AUDUSD sentiment on the ActivTrader platform is relatively balanced with a slight leaning to the short side. A lot of the uncertainty will be around the US dollar direction, but a weakening China economic situation doesn’t bode well for the Australian economy either. The Australian economy advanced 0.7% quarter-on-quarter in Q2 2021 and the positive price action may be due to this figure beating market expectations of 0.5%. Over the last 4 quarters, the trend has been lower as the ongoing COVID-19 lockdowns dent the economy and look like sticking around for longer.

The AUDUSD had been trending lower in a neat channel and then in mid-August, the sudden acceleration in US dollar positive flows and COVID-19 concerns across Australia pushed the AUDUSD into a capitulation for anyone left holding along. The bounce-back could be a re-test of the balance area highlighted in a rectangle, or it could be a resumption of the longer-term trend from the March 2020 lows now any weak longs have been shaken out. Now is probably not the time to get long as resistance above is quite substantial, if anything there may be a chance for a small, short position on the test of 0.73600.

German retail sales have collapsed coming in at -0.3% year-on-year for the month of July. Expectations had been for a downward reading to 3.7% from a previous revised higher 6.5% reading. The -5.1% decline has been due to base effects from the previous disrupted year but were seen in the sales of beverages and tobacco, super and hypermarkets, and clothing.

The EURUSD had traded up to the higher bounds of a falling wedge that I am monitoring on the daily time frame. And after the news this morning there was a bounce for a moment in the price action. The London open though has unwound the majority of that action and on an H1 chart, I am expecting to see a test of the 200-period exponential moving average (ema).

Later on today we will hear from the OPEC+ JMMC meeting and find out whether they are adjusting their current policy.

Brent crude prices have started today off positively and that comes on the back of the API crude inventory data released yesterday. Inventories in the US are down 4.05mln barrels, though Cushing reserves were up 2.13mln barrels. The driving season is coming to an end and high gasoline prices at the pump may have pushed stockpiles higher by 2.71mln barrels. Whereas the distillates reserves show a draw of 1.96mln which may be an indicator that haulage is picking up. Later today there will be news from the US EIA weekly crude reports.

ADP numbers may be the catalyst for a move today in the equities markets a number below 400k being very bearish and a number above 850k instigating bullishness. Expectations are for 613k new jobs to be registered.

Following the jobs numbers comes the US ISM Manufacturing PMI for August, expectations are for a slight decrease but a number below 55.2 will be market moving.

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