In the US, new home sales surprised to the upside by rising 2.3% in April. Meanwhile, China’s manufacturing is contracting in May for the first time in seven months, adding to signs that economic growth is losing steam for a second quarter. As a result, the Australian dollar has been falling steadily since April. It recently crossed the psychologically strong 1.000 parity level, and there are no signs of reversing course. Given the state of the Australian economy, we believe the Aussie to be undervalued.
Those of you who are following world markets might have heard that the Japanese Nikkei Index fell 7.3% since Monday of this week. The prospect of much more aggressive easing by the Bank of Japan has weakened the yen and raised hopes of an end to deflation, while the government has promised to boost long-term growth with a raft of structural reforms and a more sustainable fiscal strategy. This mix goes well beyond the boost Japanese exporters. In other words, look for the Yen to continue strengthening the coming days.
Stop loss 102.60
Take profit 100.83
Canadian stocks fell on Thursday for the first time in five days amid a global equity sell off as China’s manufacturing industry unexpectedly contracted. The Canadian dollar has been correcting downwards from the strong bullish swing seen on Wednesday. While we do expect the Loonie to strengthen further in the coming days, traders are still advised to use caution given the prevailing uptrend. Place your take profit close when entering short positions.
Stop loss 1.0345
Take profit 1.0282
The flash surveys for the euro-zone increased in May relative to April, and were better than we or the consensus had expected. Nonetheless, at 47.7, the composite PMI is only back to its average level in the first quarter of the year, when GDP fell by 0.2%. As such, today’s surveys indicate that the euro-zone is probably heading for a seventh successive quarterly fall in GDP. We’re waiting for the German Business Climate figures to be released later today. They could provide profitable trading opportunities. Long positions are advised until further notice.
Stop Loss 1.2887
Take profit 1.2965