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Highligts

Yen Slips as Election Nears
Politicians Talk Up Europe
Metals Prices Fall
HSBC flash purchasing managers’ index for December hit a 14-month high
China Rally’s

China shares outperformed Asian peers after the HSBC flash purchasing managers’ index for December hit a 14-month high of 50.9, the fifth straight monthly gain, showing growth in China’s vast manufacturing sector picked up and underlined a brighter outlook for the economy in coming months.

The private survey followed recent positive data suggesting Chinese economic activity has gained some momentum in the fourth quarter after it slowed for seven consecutive quarters.

A state-backed think tank has also forecast China’s GDP growth next year at around 8 percent — above the likely government target — while calling for an expansion in the central government’s fiscal deficit to offset an uncertain external environment.

The Shanghai Composite Index .SSEC soared 4 percent while Hong Kong shares .HSI rose 0.8 percent to a 16-month peak.

The dollar has risen 5.6 percent against the yen in the past month and technically there are signs the pair has risen too fast at least in the short term, with its relative strength index standing well above the “overbought” mark of 70.

The dollar eased slightly against risk currencies, such as the euro and the Aussie, on improved risk appetite after Shanghai shares .SSEC jumped nearly four percent following a strong Chinese manufacturing survey and speculation of government-backed institutional buying in mainland markets.

Still, frustration over the U.S. ‘fiscal cliff’ talks is likely to cap their gains as negotiations to avert steep tax hikes and spending cuts between congressional Republicans and the White House hit a wall.

The euro rose to as high as $1.3110, its highest level in more than a week and last stood at $1.3105, up 0.2 percent on the day.

Also supporting the common currency, the European Union reached a landmark deal on Thursday to make the European Central Bank the bloc’s top banking supervisor and it approved long-delayed aid to Greece.

The Australian dollar also gained 0.2 percent to $1.0547, near a three-month peak of $1.0585 earlier in the week.

The British pound also regained some ground after having slipped on Thursday as Standard and Poor’s cut its outlook for UK government debt to negative, putting the country’s triple A rating at risk. It fetched $1.6128, up 0.2 percent.

Leaders in Europe are hard at work talking up their latest Band-Aid on the European economy, the market is buying it and the Euro is hold above $1.30 for now, we expect it to make some further advances but in terms of the economy, nothing has changed.

Europe’s new plan is to print more money, as supply rises, the value will fall. Our 2013 Euro outlook remains sub $1.20.

In Asia

The HSBC flash manufacturing purchasing managers’ index in China advanced to a 14-month high reading of 50.9 in December, compared to a reading of 50.5 posted in November.

The AUD is expected to find its first resistance at 1.0566, and a rise through could take it to the next resistance level of 1.0592.

The GBP/AUD as technicals stand, it seems as though, risk should be skewed to the downside for an eventual break of 1.5260/70, which may lead to increased downside pressure seeking Nov 14 low at 1.5185. An attempt to move away from lows should encounter an initial bout of offers around 1.5350, Dec 11 high, followed by 1.5380, descending trendline acting as dynamic resistance.

EUR/USD intraday: bullish bias above 1.3035

The pair is advancing 0.26% at 1.3112 with the next resistance at 1.3127 (high Dec.5) ahead of 1.3129 (high Oct.18) and then 1.3140 (high Oct.17).
On the flip side, a breach of 1.3040 (low Dec.13) would expose 1.3018 (MA10d) and 1.2996 (low Dec.12).

Pivot: 1.3035.
Our preference: LONG positions above 1.3035 with 1.3125 & 1.314 in sight.
Alternative scenario: The downside penetration of 1.3035 will call for a slide towards 1.301 & 1.299.
Comment: the pair remains on the upside and is approaching its previous high.

USD/CHF intraday: the downside prevails.

Pivot: 0.9250.
Our preference: SHORT positions below 0.925 with 0.9215 & 0.9195 as next targets.
Alternative scenario: The upside breakout of 0.925 will open the way to 0.9275 & 0.9295.
Comment: the pair is under pressure and is challenging its support.