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Yen Gains, Aussie Falls as China Weakens Yuan Most Since August

Yen Gains, Aussie Falls as China Weakens Yuan Most Since August

2016-01-07 03:33:00
Ilya Spivak, Head Strategist, APAC
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Talking Points:

  • 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.

Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

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

European Session

GMT

CCY

EVENT

EXP

PREV

IMPACT

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%

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EURUSD

1.0599

1.0682

1.0732

1.0765

1.0765

1.0815

1.0848

GBPUSD

1.4478

1.4558

1.4594

1.4638

1.4638

1.4674

1.4718

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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