Commodity Currencies Slide Amid Revived Chinese Fears
Swissquote Bank Ltd | Jan 04, 2016 06:22AM ET
Market Brief
After a period of lethargy, a hallmark of year-end trading sessions, financial markets woke up with a start on Monday as Chinese markets halted stock trading after a drop of 7% in the CSI 300 Index. In Shanghai, shares fell 6.85%, while in Shenzhen stocks dropped 8.19% as fears deepen over China’s slowdown and the end of the ban on share sales for major stakeholders. China’s December official manufacturing PMI (49.7 versus 49.8 expected) showed that further downside adjustments are still to come as the country’s economy continues its transformation. The Caixin manufacturing PMI for December printed at 48.2 this morning, below 48.9 consensus and previous reading of 48.6. On the bright side, the non-manufacturing official gauge jumped to 54.4 from 53.6 in the previous month.
In the Middle East, tensions between Iran and Saudi Arabia escalate as Saudi Arabia cuts its diplomatic ties with Iran amid an attack on its embassy in Tehran. The attack came after the execution of a Shiite cleric by Saudi Arabia. The uncertainty in the region has pushed crude oil prices higher as the Brent rose more than 1% and tested the $38 resistance.
Commodity currencies fell the most in overnight trading as risk off sentiment spreads outside of Chinese borders. The kiwi dropped by 1.80% to reach $0.6745. NZD/USD and is currently testing the support implied by the lower bound of the 1-month uptrend channel at around $0.6750. The Aussie was the second worst performer as it fell by 1.30% in Sydney, reaching $0.7198. We expect the pressure will remain high on commodity currencies, especially the Aussie and the kiwi as traders supported them during the last weeks of 2015 in spite of lacklustre fundamentals.
In Japan, the yen is on fire, rising more than 1.30% against the US dollar, reaching it higher level since October 16th. The JPY is currently trading at around 118.95 against the greenback amid better-than-expected manufacturing PMI for December. The measure rose to 52.6 compared to an earlier estimate of 52.5. USD/JPY will find a strong support at 118.07 (psychological threshold and low from October 15th); if broken, the next support area can be found between 115.50 and 116.20 (low from December 2014 and August 2015). On the upside, the 123.76 (high from November 18th) will act as resistance.
In Europe, stock indices fell deep into negative territory as Chinese fears spread. Futures on the DAX were down 3.04% and dropped 1.32% on the Footsie. The SMI was down 1.55%, while in France, the CAC dropped 1.68%. On the other hand safe haven assets benefited from the risk off environment as gold rose 0.95%, while the Swiss franc appreciated 0.65% versus the dollar and 0.10% against the single currency.
Get The News You Want
Today, traders will be watching CPI report from Turkey and Germany; SNB’s total sight deposits from Switzerland; manufacturing PMIs from Canada, Italy, France, Germany and the eurozone; mortgage approval and manufacturing PMI from the UK; Markit manufacturing, ISM Manufacturing and Prices paid and construction spending from the US; trade balance and manufacturing PMI from Brazil.
Currency Tech
EUR/USD
R 2: 1.1387
R 1: 1.1095
CURRENT: 1.0935
S 1: 1.0458
S 2: 1.0000
GBP/USD
R 2: 1.5529
R 1: 1.5242
CURRENT: 1.4762
S 1: 1.4566
S 2: 1.4321
USD/JPY
R 2: 125.86
R 1: 123.76
CURRENT: 118.74
S 1: 118.07
S 2: 115.57
USD/CHF
R 2: 1.0676
R 1: 1.0328
CURRENT: 0.9935
S 1: 0.9786
S 2: 0.9476
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