Hong Kong shares plunge 4% at open, JPY strengthen

Market Brief

In the wake of Janet Yellen’s testimony before the House Financial Services Committee in Washington; FX traders kept on selling the US dollar during the Asian session as the Fed Chairwoman released a cautious speech. According to Yellen, the Federal Reserve is still on track to raise gradually short-term rates, however the recent market turmoil and the uncertainty about china’s growth prospect could weigh on US growth if proven persistent. A few days ago, Stanley Fisher, Fed Vice Chairman, delivered also a cautious speech by recalling that the Fed’s policy will remain data dependent and that it was too soon to tell if the current market conditions will prevent the Fed to move on with its rate cycle.

Yesterday investors rushed into US treasuries and sent sovereign rates lower, especially on the short end of the yield curve. The 30-year yields settled down 10bps to 2.49%, while the 10-year yields fell also 10bps to 1.67%, suggesting that investors are turning more pessimistic about the long-term outlook. The US dollar printed a fresh 16-month low against the Japanese yen, suggesting that traders believe the BoJ will be unable to weaken further the yen, while betting the Fed will have to remain sidelined for a longer period of time. USD/JPY is currently trading at around 112.75, down 0.50% in overnight trading. On the downside, a first support can be found at around 110 (psychological level and previous high), however the main support lies at 105.23 (low from October 15, 2014).

AUD/USD continued to push higher, remaining in its medium-term uptrend channel. The Aussie has been boosted by the potential delay of the next rate hike by the Federal Reserve, together with the solid performance of the Aussie economy against the backdrop of falling commodity prices.

The New Zealand dollar failed once again in an attempt to break the $0.6750 resistance and is now reversing the trend toward the next support at around $0.66.

Equities were broadly trading in negative territory as most Asian markets re-opened for trading. Hong Kong’s Hang Seng fell 3.88% after being closed for the last three days. South Korea’s Kospi settled down 2.93%, while in Singapore the STI fell 0.77%. Mainland Chinese markets will re-open next Monday. Be ready for the gap. In Europe equity futures are blinking green across the screen as concerns about the global economy weighs on traders’ mind. The German DAX was down 1.35%, the SMI -1.33%, the CAC -1.31% and the Euro Stoxx 600 -1.40%. US futures were also trading lower with contracts op the S&P 500 down 0.47%.

Today traders will be watching current account balance from Turkey; CPI from Switzerland; Riksbank interest rate decision (expect a cut); manufacturing production from South Africa; trade balance and gold and Forex reserve from Russia; Yellen’s speech before the Senate, initial jobless claims from the US; RBA governor’s testimony in front of the parliament committee.

Currency Tech

EURUSD
R 2: 1.1495
R 1: 1.1387
CURRENT: 1.1313
S 1: 1.0711
S 2: 1.0524

GBPUSD
R 2: 1.5242
R 1: 1.4969
CURRENT: 1.4459
S 1: 1.4081
S 2: 1.3657

USDJPY
R 2: 125.86
R 1: 123.76
CURRENT: 112.01
S 1: 105.23
S 2: 100.78

USDCHF
R 2: 1.0676
R 1: 1.0328
CURRENT: 0.9700
S 1: 0.9476
S 2: 0.9072

• S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot