Daily Report: Risk Rally Continues Cautiously as Manufacturing Data in Spotlight Today

Risk rally extend mildly today but investors are generally cautious ahead of some important manufacturing data today. Appetite for risks is also dampened mildly by slightly weaker than expected China Manufacturing PMI as well as the surprised rate cut from Brazilian central bank. Euro and sterling are mildly softer as dragged down by rebound in Swiss Franc in EUR/CHF and GBP/CHF. Also, commodity currencies are also losing some upside momentum against the greenback.

Manufacturing data will be a key focus today. China PMI recovered from 29 month low of 50.7 to 50.9 in August but was slightly below expectation of 51. Eurozone manufacturing PMI finalized release will be released in European session today and is expected to be unrevised at 49.7 UK manufacturing PMI is expected to rise slightly to 49.5. Swiss SVME PMI is expected to dropped to 51.2 in August. US ISM manufacturing is expected to dropped to 48.5 in August. If inline with expectation, all, Eurozone, UK and US manufacturing PMI will be below 50, which suggests mild contraction ahead and will raise of risk that the global economy is entering back into recession. Other data to note include Australia retail sales, which rose slightly more than expected by 0.5% mom in July. Swiss Q2 GDP, retail sales, US jobless claims, non-farm productivity and construction spending will also be featured.

Swiss Franc remains firm as markets believe SNB won't intervene for the time being. Switzerland's Economy Minister Johann Schneider-Ammann said yesterday that the country have to "keep living with the strong franc for some time. It must be a combination of measures that will lead us into the future." Meanwhile, the Swiss government also pledged to use CHF 870m for an economic stimulus package to lessen the impact of the strength in Swiss Franc, aiming at supporting tourism, and exports. Technically, USD/CHF, EUR/CHF and GBP/CHF seem to have made short term tops earlier this week and are likely to pare back some of the strong intervention inspired gains. Nevertheless we'd be cautious in particular when EUR/CHF dips back below 1.1 level. It's still believed that SNB is determined to defend parity in EUR/CHF.

While risk appetite remains firm so far, we'd like to point out that stocks should be facing strong resistance in near term and investors would start to be cautious at current level and would likely weight for September's FOMC meeting for Fed to announce new stimulus. 55 days EMA in DOW at 11771 and 11862 resistance should hold in near term at least and traders will use every reason for profit taking, including possibility of poor ISM today and NFP tomorrow. 

EUR/CHF Daily Outlook

Daily Pivots: (S1) 1.1452; (P) 1.1651; (R1) 1.1778; 

Considering bearish divergence condition in 4 hours MACD, EUR/CHF might have made a short term top at 1.1971. Intraday bias is cautiously on the downside for the moment and sustained break 4 hours 55 EMA (now at1.1555) should bring deeper pull back to 1.1163 support and below. On the upside, though, above 1.1971 will extend the strong rebound from 1.0061 towards 1.2399 medium term support turned resistance next.

In the bigger picture, the strength of the rebound from 1.0061 argues it's a medium term bottom and EUR/CHF has turned into a phase of medium term consolidation. Sustained trading above 55 days EMA should bring stronger rise back to 1.2399/3243 resistance zone but strong resistance should be seen there to bring reversal. On the downside, decisive break of parity is needed to confirm down trend resumption. Otherwise, we'll now stay neutral in the cross and expect some more consolidations above there. 

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
22:45	NZD	Terms of Trade Index Q/Q Q2	2.30%	0.60%	0.90%	0.80%
1:00	CNY	PMI Manufacturing Aug	50.9	51	50.7
1:30	AUD	Retail Sales M/M Jul	0.50%	0.30%	-0.10%
5:45	CHF	GDP Q/Q Q2		0.40%	0.30%
6:00	EUR	German GDP Q/Q Q2 F		0.10%	0.10%
7:15	CHF	Retail Sales (Real) Y/Y Jul		4.60%	7.40%
7:30	CHF	SVME-PMI Aug		51.2	53.5
8:00	EUR	Eurozone PMI Manufacturing Aug F		49.7	49.7
8:30	GBP	PMI Manufacturing Aug		49.5	49.1
12:30	USD	Initial Jobless Claims		409K	417K
12:30	USD	Unit Labor Costs Q2 F		2.30%	2.20%
12:30	USD	Non-Farm Productivity Q2 F		-0.50%	-0.30%
14:00	USD	Construction Spending M/M Jul		0.10%	0.20%
14:00	USD	ISM Manufacturing Aug		48.5	50.9
14:00	USD	ISM Prices Paid Aug		55	59
14:30	USD	Natural Gas Storage		61B	73B