Yen Gains, Aussie Falls as China Weakens Yuan Most Since August
- China Devalues Yuan By Most Since August, Triggers Burst of Risk Aversion
- US Dollar Eyeing Fed-Speak as 2016 Rate Hike Path Speculation Continues
- Gauge Trends and Spot Reversals in Leading Currencies with DailyFX SSI
China has triggered another sharp burst of risk aversion after devaluing the Yuan by over 0.5 percent at today’s daily fix, marking the largest downward revision since Augusts’ fateful readjustment. The sentiment-linked Australian Dollar dropped alongside Asian share prices while the safety-linked Japanese Yen outperformed. Cycle-sensitive commodities including copper and crude oil fell while gold and silver traded higher. Chinese stocks were shut down for the day after hitting the limit-down threshold of 7 percent.
As we noted yesterday, the consensus interpretation for the markets’ negative response is that Chinese devaluation speaks to a need for emergency stimulus expansion, which implies greater-than-expected malaise in the world’s second-largest economy. Weakening the currency can be seen as a form monetary stimulus however, so one might have expected markets to cheer Beijing’s actions. With that in mind, it seems as though price action reflects a reflexive response drawing surface-level parallels with Augusts’ panic selling rather than a sober evaluation of China’s actions on their fundamental merits.
Looking ahead, S&P 500 futures are pointing sharply lower, hinting that risk aversion is aiming to continue in the hours ahead. The economic calendar is relatively quiet, putting the spotlight on Fed-speak as the source of event risk du-jour. Comments from Richard Lacker and Charles Evans, Presidents of the Richmond and Chicago Fed branches respectively, are due to cross the wires.
The two policymakers represent the hawkish and dovish extremes of last years’ contingent of FOMC voters. Traders will look to their remarks for clues about the likely 2016 rate hike path. The central bank projected four 25bps increases last month while the markets continue to envision no more than two. Investors’ dovish lean skews volatility risk to the upside for the US Dollar in the event that cumulative commentary strikes a hawkish tone.
Losing Money Trading Forex? This Might Be Why.
|00:30||AUD||Trade Balance (NOV)||-2906M||-2970M||-3247M|
|0:30||AUD||Building Approvals (MoM) (NOV)||-12.7%||-3.0%||3.3%|
|0:30||AUD||Building Approvals (YoY) (NOV)||-8.4%||3.9%||12.6%|
|2:00||JPY||Tokyo Avg Office Vacancies (DEC)||4.03||-||4.19|
|07:00||EUR||German Retail Sales (MoM) (NOV)||0.5%||-0.1%|
|07:00||EUR||German Retail Sales (YoY) (NOV)||3.7%||2.1%|
|07:00||EUR||German Factory Orders (MoM) (NOV)||0.1%||1.8%|
|07:00||EUR||German Factory Orders WDA (YoY) (NOV)||1.1%||-1.4%|
|08:00||GBP||Halifax House Prices (MoM) (DEC)||0.5%||-0.2%|
|08:00||GBP||Halifax House Price 3Mths/Year (DEC)||9%||9%|
|08:30||EUR||Markit Germany Construction PMI (DEC)||-||52.5|
|09:00||GBP||New Car Registrations (YoY) (DEC)||-||3.8%|
|09:10||EUR||Markit Germany Retail PMI (DEC)||-||49.6|
|09:10||EUR||Markit Eurozone Retail PMI (DEC)||-||48.5|
|09:10||EUR||Markit France Retail PMI (DEC)||-||47.8|
|09:10||EUR||Markit Italy Retail PMI (DEC)||-||47.7|
|10:00||EUR||Euro-Zone Economic Confidence (DEC)||106.0||106.1|
|10:00||EUR||Euro-ZoneBusiness Climate Indicator (DEC)||0.39||0.36|
|10:00||EUR||Euro-Zone Industrial Confidence (DEC)||-2.9||-3.2|
|10:00||EUR||Euro-Zone Services Confidence (DEC)||12.6||12.8|
|10:00||EUR||Euro-Zone Consumer Confidence (DEC F)||-5.7||-5.7|
|10:00||EUR||Euro-Zone Unemployment Rate (NOV)||10.7%||10.7%|
|10:00||EUR||Euro-Zone Retail Sales (MoM) (NOV)||0.2%||-0.1%|
|10:00||EUR||Euro-Zone Retail Sales (YoY) (NOV)||2.0%||2.5%|
|CCY||Supp 3||Supp 2||Supp 1||Pivot Point||Res 1||Res 2||Res 3|
--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
To receive Ilya's analysis directly via email, please SIGN UP HERE
Contact and follow Ilya on Twitter: @IlyaSpivak
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.