The FTSE 100 is seeing a strong selloff this morning as China opts to weaken the Chinese Yuan. This in turn is set to trigger a 7% decline in the Chinese stock market index, the CSI 300.
Due to the new circuit breaker setup, the CSI trading was halted for the rest of the day as it reached a decline of 7%. The reaction on Chinese stock markets then propagated to regional currencies and stock markets, dragging down the FTSE 100. Looking ahead it would be fair to expect stock markets to remain soft as the China CSI 300 still has an 8 percent decline in store until it reaches its August low. Additionally, a softer Chinese Yuan makes perfect sense as it may allow the Chinese economy to remove itself from low growth, therefore declining further and putting pressure on the FTSE 100.
Data on tap today is U.S. Initial Jobless Claims at 13:30 GMT. A Bloomberg survey projects an outcome of 275K.
Technical Outlook
The FTSE 100 is about to reach its December 14 low at 5858, which will probably act as a profit taking zone for bearish traders. Beyond 5858 we find the August 24 low of 5768. Traders looking to add to short positions will most likely be bearish below the intraday high of 6083 (created yesterday), and will wait for a 50% pullback on the decline from 6083, which is the 5982 level. They do this to ensure that they have a reasonably good risk reward ratio if the price slides to 5858 and 5768 post a corrective rally. We use the risk-reward ratio as outlined in The Traits of Successful Traders Guide.
FTSE 100 (UK100)
Created with Marketscope/Trading Station II; prepared by Alejandro Zambrano
--- Written by Alejandro Zambrano, Market Analyst for DailyFX.com
Contact and follow Alejandro on Twitter: @AlexFX00
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