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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

Ilya Spivak,

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

GMTCCYEVENTACTEXPPREV
00:30AUDTrade Balance (NOV)-2906M-2970M-3247M
0:30AUDBuilding Approvals (MoM) (NOV)-12.7%-3.0%3.3%
0:30AUDBuilding Approvals (YoY) (NOV)-8.4%3.9%12.6%
2:00JPYTokyo Avg Office Vacancies (DEC)4.03-4.19

European Session

GMTCCYEVENTEXPPREVIMPACT
07:00EURGerman Retail Sales (MoM) (NOV)0.5%-0.1%
07:00EURGerman Retail Sales (YoY) (NOV)3.7%2.1%
07:00EURGerman Factory Orders (MoM) (NOV)0.1%1.8%
07:00EURGerman Factory Orders WDA (YoY) (NOV)1.1%-1.4%
08:00GBPHalifax House Prices (MoM) (DEC)0.5%-0.2%
08:00GBPHalifax House Price 3Mths/Year (DEC)9%9%
08:30EURMarkit Germany Construction PMI (DEC)-52.5
09:00GBPNew Car Registrations (YoY) (DEC)-3.8%
09:10EURMarkit Germany Retail PMI (DEC)-49.6
09:10EURMarkit Eurozone Retail PMI (DEC)-48.5
09:10EURMarkit France Retail PMI (DEC)-47.8
09:10EURMarkit Italy Retail PMI (DEC)-47.7
10:00EUREuro-Zone Economic Confidence (DEC)106.0106.1
10:00EUREuro-ZoneBusiness Climate Indicator (DEC)0.390.36
10:00EUREuro-Zone Industrial Confidence (DEC)-2.9-3.2
10:00EUREuro-Zone Services Confidence (DEC)12.612.8
10:00EUREuro-Zone Consumer Confidence (DEC F)-5.7-5.7
10:00EUREuro-Zone Unemployment Rate (NOV)10.7%10.7%
10:00EUREuro-Zone Retail Sales (MoM) (NOV)0.2%-0.1%
10:00EUREuro-Zone Retail Sales (YoY) (NOV)2.0%2.5%

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3
EURUSD1.05991.06821.07321.07651.07651.08151.0848
GBPUSD1.44781.45581.45941.46381.46381.46741.4718

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

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