China weighs on investor sentiment

Market Brief

As if the concerns in Europe were not enough to destabilize markets, Asian stocks fell for the most overnight on concern that China won’t be easing monetary policy further. The fear that China might be willing to bottom out before injecting further stimulus offset market reaction from the better than expected US Michigan consumer sentiment preliminary reading which came in at 73.6 vs. a market consensus of 72.4 and a prior of 72.3. Hong Kong’s Hang Seng dropped 0.48% to 20,019.33 and the Shanghai Composite index 0.51%. CNY depreciated against most of the G10 currencies in the exception of the Nordics (SEK and NOK), ending flat against the USD at 7:10 GMT. USDCNY depreciated 0.60% from its high on July 25th but has been evolving horizontally or the past since August 9th right around the flattening 55-day EMA. USDJPY has held on to last week’s 1.92% gain, reaching a 5-week high at 79.66 before settling lower than Friday’s close. Investors are worried that Shirakawa is not holding well to his six-month old promises so as to achieve an inflation target of 1%. The main firepower the BoJ has for reaching this inflation level is the asset purchase fund set at JPY 45TN and which was kept unchanged at the August 9th meeting of the BoJ, as well as the control of the strength of the currency as interest rates have been sitting at record lows for quite some time now. The JPY had depreciated 9.55% earlier this year as markets turned the risk tap on, but failed to hold on to these gains as the situation in Europe, China, and Japan deteriorated. The pair slumped 5.59% from March highs. As for the situation in Europe, leaders are scheduled to discuss the two-year deadline extension requested by Greece in order to reach its budget target. French press reports seem to show leniency towards the issue and Germany too, in spite of some resistance. German Finance Minister Schaeuble cut the speculation over the failure of the EUR describing it as “nonsensical” but noted that Greece is an “especially difficult case” and so it would be “stupid” not to study case scenarios in case it falls. The permanent stability mechanism which was due to be launched on July 9th is now delayed until the German constitutional court rules its constitutionality in September. Till then, we suspect the safety net for the situation to be the ECB, backed by European leader’s statements.

Currency Tech

EURUSD
R 2: 1.2444
R 1: 1.2387
CURRENT: 1.2357
S 1: 1.2242
S 2: 1.2134

GBPUSD
R 2: 1.5793
R 1: 1.5768
CURRENT: 1.5706
S 1: 1.5637
S 2.5578

USDJPY
R 2: 79.950
R 1: 79.580
CURRENT: 79.480
S 1: 78.920
S 2: 78.590

AUDUSD
R 2: 1.0582
R 1: 1.0541
CURRENT: 1.0447
S 1: 1.0417
S 2: 1.0384

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