USD Broadly Lower As Global Sell-Off Eases

 | Sep 14, 2016 06:51AM ET

Market Brief

The global equity market sell-off continued on Wednesday as investors started to question whether current equity valuations still make sense against the backdrop of anaemic global growth and subdued inflationary pressure. In Asia, equity indices were trading broadly lower as Japanese shares took the largest hit. The Nikkei and Topix were down 0.76 and 0.65% respectively, while the yen fell 0.36% against the greenback with USD/JPY grinding higher to 103.20. Since yesterday, the pair has been trading with a solid uptrend bias and will most likely continue to push higher as investors fear the BoJ will further increase its monetary policy easing. On the upside, a first resistance can be found at 104.32 (high from September 2nd), while on the downside, a support lies at 101.21 (low from September 7th).

Emerging market currencies had a tough session yesterday as investors reduced their risky positions. The Brazilian real, Colombian peso and Chilean peso were all off more than 1% against the greenback. Over the last two days, the Brazilian real was the worst performer in Latin American falling 2% against the USD, with USD/BRL moving above the 3.30 threshold. The pair has finally escaped its downtrend channel to the upside and is now trading sideways at between 3.15 and 3.50. We maintain our bearish view on the real as we believe the market has been overly optimistic regarding the potential outcome of Rousseff’s impeachment. The market will continue to pay more and more attention to the fundamentals and will gradually realize that the economic prospect is not that bright, even with a brand new government.