The weak crude Oil inventories yesterday spurred our US Oil trade down to Target 1 rather quicker than expected and the $45.50 level proved irrelevant. Yesterday I wrote “Today I have re-entered the USOil trade ($46.25) this time on the short side as the psychological $47.00 level and 61.8 fib level were both breached and broken on yesterdays close. Target 1 at $44.55 is above the 38.2 Fib level and a little over the 2 week ATR However, it is but below the 50.0 Fib level, 20 and 50 DMA which all currently coalesce around $45.50, so expect some resistance here before the move lower. Target 2 at $42.25 and sub $40.00 again, cannot be ruled out. ”
Today there has been a raft of manufacturing PMI data with very mixed results from the Eurozone but very good results from the UK.
EMU Aug manufacturing PMI revised down to 51.7 from 51.8 reported initially and versus 52.0 in July. Germany and the Netherlands are reporting the strongest rate of manufacturing expansion, but while the latter is at a 5-month high, the former has dropped to a 3 month low. Italy has slipped back into recession territory and is at a 20-month low and the French reading is also pointing to contraction in the manufacturing sector. New orders growth has slowed to the weakest rate in one-and-a-half years according to Markit and new export orders rose at the slowest pace since May. Markit noted signs that growth could slow further in coming months amid “some suggestion of a Brexit impact”. That the Brexit scenario would hit especially the manufacturing sector was always clear and especially the exchange rate moves since the referendum will have been felt already. Whether this alone will be sufficient to spook the ECB remains to be seen.
UK August manufacturing PMI rebounded strongly from July’s post-Brexit vote slump to 48.3, coming in at 53.3. The is the biggest month-to-month rebound in 25 years and, at 53.3, is the best level the indicator has seen in 10 months. The median forecast had been for a much more modest recovery to a 49.0 reading. A surge in exports underpinned the sector. Markit, the compiler of the survey, reported that the 12%-plus drop in sterling since the Brexit vote was “by far the main factor manufacturers cited as supporting the upswing in new export work.” Markit also reported that a sense of “business as usual” had returned, with work postponed in July having been restarted in August. The data is encouraging, though the construction and services PMI reports, due tomorrow and Monday, respectively, are likely to show that these sectors have not enjoyed the same extent of benefits of the weaker pound that the manufacturing sector evidently has.
Sterling has nonetheless surged on data today, up by nearly 1% versus the dollar and currently trades above the 50 DMA and close to the top of its post Brexit range at 1.3245.
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