Talking Points:

  • Aussie Dollar Drops, Yen Gains as China Cash Injection Stunts Risk Appetite
  • Euro May Fall as Sentiment Firms if ECB Hints at Stimulus Expansion Ahead
  • Gauge Trends and Spot Reversals in the Major Currencies with DailyFX SSI

A late-day recovery on Wall Street inspired a chipper mood in early Asian trade, with the sentiment-linked Australian, Canadian and New Zealand Dollars trading higher alongside share prices while the anti-risk Japanese Yen underperformed. The upbeat tone appears to be fading however. Shares have started to retreat and currencies are following suit, with the commodity bloc trimming gains and the Yen recovering to trade barely changed on the session having been down as much as 0.5 percent.

The turn in sentiment appears to have followed news that China injected CNY400 billion (US$60 billion) into the market via reverse repo operations. That amounts to the largest liquidity outlay in three years. In recent months, Chinese monetary stimulus efforts have been frequently met with a risk-averse response. Rather than bolstering optimism, investors appear to be interpreting Beijing’s efforts as a sign that officials are becoming increasingly worried and resorting to ever more dramatic countermeasures.

Furthermore, greater easing is compounding downside pressure on the Yuan and compounding the threat of further devaluation. That has been a driver of negativity in its own right. Currency weakness undermines Chinese consumers’ purchasing power of imported goods, encouraging the short-term oriented and speculatively-minded investors in Chinese shares to reallocate capital from “play money” to more mundane expenditures. This has made for a seemingly counter-intuitive inverse relationship between measures of liquidity supply and the benchmark CSI 300 stock index.

Looking ahead, the ECB monetary policy announcement is in the spotlight. The central bank is expected to stay the course for now. December’s disappointing CPI figures are likely to mean that President Mario Draghi will have to field questions about stimulus expansion at the press conference following officials’ meeting. Comments suggesting greater easing is likely in the near term may breathe new life into risky assets, sending the higher-yielding currencies upward while weighing on the Euro. Rhetoric signaling a lack of urgency in offering further accommodation is likely to trigger the opposite dynamic.

Losing Money Trading Forex? This Might Be Why.

Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

21:00

NZD

ANZ Job Advertisements (MoM) (DEC)

1.1%

-

2.4%

21:30

NZD

BusinessNZ Manufacturing PMI (DEC)

56.7

-

54.9

00:00

AUD

Consumer Inflation Expectation (JAN)

3.6%

-

4.0%

00:00

AUD

HIA New Home Sales (MoM) (NOV)

-2.7%

-

-3.0%

00:00

NZD

ANZ Consumer Confidence Index (JAN)

121.4

-

118.7

00:00

NZD

ANZ Consumer Confidence (MoM) (JAN)

2.3%

-

-3.3%

00:01

GBP

RICS House Price Balance (DEC)

50%

50%

49%

00:30

AUD

RBA FX Transactions Government (DEC)

-1308M

-

-517M

00:30

AUD

RBA FX Transactions Market (DEC)

1175M

-

485M

00:30

AUD

RBA FX Transactions Other (DEC)

140M

-

39M

04:30

JPY

All Industry Activity Index (MoM) (NOV)

-

-0.7%

1.0%

05:00

JPY

Supermarket Sales (YoY) (DEC)

-

-

-1.0%

European Session

GMT

CCY

EVENT

EXP

PREV

IMPACT

08:00

CHF

M3 Money Supply (YoY) (DEC)

-

2.7%

Low

12:45

EUR

ECB Main Refinancing Rate (JAN 21)

0.05%

0.05%

High

12:45

EUR

ECB Deposit Facility Rate (JAN 21)

-0.3%

-0.3%

High

12:45

EUR

ECB Marginal Lending Facility (JAN 21)

0.3%

0.3%

High

13:30

EUR

ECB President Draghi Holds Press Conference

-

-

High

15:00

EUR

Eurozone Consumer Confidence (JAN A)

-5.7

-5.7

Medium

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EUR/USD

1.0716

1.0815

1.0853

1.0914

1.0952

1.1013

1.1112

GBP/USD

1.3993

1.4086

1.4139

1.4179

1.4232

1.4272

1.4365

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

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