Risk Sentiment Improves As PBOC Calms Markets
Swissquote Bank Ltd | Feb 15, 2016 05:52AM ET
Market Brief
The PBoC’s decision to set the USD/CNY fixing to 6.5118, down 0.30%, helped the risk sentiment to improve substantially. As a result Asian regional equity markets started the week trading on a firmer footing, while mainland Chinese markets opened roughly flat. The Japanese Nikkei 225 was up 7.16%, while the broader TOPIX index surged 8.02%. After being closed during the entire week, the market was expecting a massive sell-off in Chinese equities but it seems that the PBoC intervention was sufficient to reassure traders; the Shanghai Composite edged down 0.42% and the Shenzhen one edged up 0.17%. Elsewhere, in Hong Kong the Hang Seng rose 2.97%, in Singapore the STI surged 2.63%, in Australian and New Zealand equities were up 1.64% and 1.69% respectively, while in South Korea the KOSPI climbed 1.47% Safe haven assets felt the blow from the improving risk sentiment with gold down 1.67% and silver down -2.97%. In Europe, futures are pointing to a higher open with most indices trading around 2% higher.
In the FX market, safe haven currencies were erasing previous week’s gains as risk appetite improves. The Japanese yen was strongly hit as the market discovered the latest GDP revision for the fourth quarter of 2014. The Japanese economy contracted 0.4%q/q (s.a.) or 1.4% (s.a.a.r.), missing estimates of -0.2% and -0.8% respectively. We therefore anticipate that the BoJ will ease further its monetary policy, most likely at its next monetary policy meeting on March 15th. Since last Thursday, USD/JPY continued to trade with a positive bias and is currently on its way to the 114 level. The pair will find first resistance at around 115.50 (previous support, now resistance). However, with the US closed for President Day, we do not expect massive movement as liquidity will remain below average this Monday. The Swiss Franc also returned previous gains as traders loaded long USD positions.
As financial markets switched to risk-on, emerging market currencies were trading higher with the Russian rouble gaining more than 1% versus the greenback as USD/RUB returned to below 78 rubble for $1. Commodity currencies took also advantage of this environment as the Aussie, the Kiwi, the loonie and the NOK were all printing solid against the US dollar in spite of a consolidation of crude oil prices. FX markets will likely consolidates today as the US are closed; however, Mario Dragh’s speech before the EU parliament, at around GMT 2pm this afternoon, could disrupt the ongoing stabilisation in financial markets.
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Today traders will be watching unemployment rate from Turkey; domestic sight deposits from Switzerland; Draghi’s speech before the EU parliament in Brussels; trade balance from the Eurozone.
Currency Tech
EUR/USD
R 2: 1.1495
R 1: 1.1387
CURRENT: 1.1203
S 1: 1.1164
S 2: 1.0711
GBP/USD
R 2: 1.5242
R 1: 1.4969
CURRENT: 1.4512
S 1: 1.4327
S 2: 1.4080
USD/JPY
R 2: 123.76
R 1: 115.17
CURRENT: 113.75
S 1: 110.99
S 2: 105.23
USD/CHF
R 2: 1.0328
R 1: 0.9969
CURRENT: 0.9817
S 1: 0.9476
S 2: 0.9072
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