Monday, September 21, 2015

Risk-aversion in full swing across Asia, German PPI – Up Next

FXStreet (Mumbai) - Ripple effects of the Federal Reserve's (Fed) decision to hold off on hiking interest rates last week extended into Monday, with flight to safety on the rise while riskier assets were sold-off across the board.

Key headlines in Asia

Chinese economy is stable - PBOC Vice-Governor Fan Yifei

China's good economic fundamentals haven't change – NDRC’s Xu Shaoshi

Asian stocks deep in the red, FOMC-led risk-off extends

Dominating themes in Asia - centered on JPY, AUD, NZD

A quiet Asia, with low volumes as well as limited volatility as Japanese markets remain closed on a three-day holiday until Thursday. However, risk-off market profile persisted amid falling Asian indices as FOMC-led uncertainties over global growth prospects continue to weigh. While markets completely shrugged off any impact of the Greece election results, which revealed that Greek Prime Minister Alexis Tsipras has been voted to remain leader.

The safe-haven currencies such as the Japanese yen, the euro and the Swiss franc were in the demand in Asia with the yen emerging the biggest gainer. USD/JPY failed to resist 120 barrier and mires near lows now, down -0.20% around 119.80. Whilst the EUR/USD pair trades 0.18% higher at 1.1318, extending its upward rally from last week.

Bearing the brunt of the persisting wave of risk-aversion are the riskier/ higher-yielding currencies such as the US dollar and the entire antipodean complex. The Aussie sold-off 0.72 handle and now trades below the key support located at 0.7180, losing -0.21% on the day. While the Kiwi remains heavily offered on the back of diminishing bids for higher-yielding assets and also on poor New Zealand’s economic news. The Westpac-McDermott Miller Consumer Sentiment index fell from 113.0 in the June quarter to 106.0 this quarter. Further, separate figures released showed net migration slowing in the Kiwi nation from 5,730 in July to 5,470 last month.

On the equities front, the continued sell-off in the Asian markets further fuelled the risk-off moods. Japan’s Nikkei stays closed in observance of Respect-for-the-Aged Day, while Australia’s S & P ASX index plunged over -2.60% to 5,034. The Chinese benchmark index, the Shanghai Composite recovered losses and flipped to gains, up 0.67% to 3,118. While Hong Kong's Hang Seng index drops -1.44% to 21,605.

Heading into Europe - centered on EUR, GBP

A quieter start to a data-busy macro week on Monday, with only a set of 2nd-tier economic news expected to be on the cards. While ECB policymakers’ speeches are likely to dominate the European session.

Producer prices of German industrial products in August are expected to drop 0.4% on a monthly basis following a flat result a month ago, while a decline of 1.6% is seen y/y after a negative 1.3% in July.

ECB Executive Board member Benoit Coeure will speak at a round-table on the occasion of the publication of the book in Rome, Italy.

While ECB Governing Council member Ewald Nowotny will participate in a panel about the Austrian banking industry.

ECB Executive Board member Peter Praet is scheduled to deliver a lecture titled 'Current issues on economic policy' at the International Center for Monetary and Banking Studies.

Later in the NA session, the US macro calendar remains fairly quiet with US existing home sales and wholesale inventories data to be reported. Markets are expecting a modest decline in secondhand home sales to 5.5 million unit sales in annualized terms in August.

Analysts at TD Securities noted, “The backdrop for the US housing market remains favorable, and with the strengthening in labor market activity and affordability housing market conditions continuing to be supportive to demand, sales activity has been buoyant."

Besides, FOMC member Lockhart is due to speak at the Buckhead Rotary Club, in Atlanta.

EUR/USD Technicals

Valeria Bednarik, Chief Analyst at FXStreet explained, “The technical picture continues lacking clear directional strength, as daily basis, the price has retreated back towards its 20 SMA that heads slightly lower around 1.1240, whilst the Momentum indicator has turned flat above the 100 level and the RSI indicator turned south, now around 53. Nevertheless, the pair holds above its 100 and 200 SMAs, both pretty much flat and well below the current level, limiting the downside around 1.1080/1.1130.”

“In the 4 hours chart, the price has broken below its 20 SMA, whilst the technical indicators indicate an increasing bearish potential, crossing their mid-lines towards the downside.”
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