NZ Dollar could weaken again overnight

Today's Highlights

Chinese decline prompts over-reaction

Markets return to semblance of normality by Tuesday open

German data is days highlight

NZ Dollar could weaken again overnight

FX Market Overview

I don't know who it is that is responsible for naming these big market movement days but they need to get a bit more imagination. The papers seem to be dubbing yesterday's unprovoked turmoil 'Black Monday' but we had one of those in 1987. As the screens around the world turned red, why didn't we call it Red Monday or is that too political? Anyway, I am reliably informed that today is National Kiss and Make up Day so perhaps I will forgive them. More importantly, who will you kiss and make up with?

Whichever colour you use to describe yesterday, it was a massive market move in all commodity and asset classes but there didn't appear to be an immediate trigger. Traders just decided that the drop in China's economic activity and the consequential fall in share prices was sufficient reason to dump shares, weaken commodity-reliant currencies and for some undecipherable reason, buy the Euro. Now I know the Euro has been weak and it is a bargain...was a bargain, but heavy buying of Euros is not something people want to do right now; what with all the unsettled business in Greece, Finland, France etc.

What we saw in the forex market was an unravelling of most of the day's gains before bedtime. Several key resistance areas were tested in the Sterling based exchange rates but the market settled back into previous ranges before the day was out.

So whilst off-white-reddish-or-maybe-grey-Monday was short of data, it was full of drama. Tuesday could well be similarly exciting but with the added thrill of real reasons to trade. It starts with German IFO business confidence indices. These are forecast to be a tad stronger than last month but the fears over China's slowdown will probably hit Germany more than other EU members, due to Germany's greater, motor, engineering, machinery and plant exports to China. These figures could disappoint and that would weaken the euro. The Sterling - Euro rate is back within the range it has occupied all year after yesterday's dip.

This morning also brings South African GDP growth data which is likely to have fallen in line with the dive in raw material and precious metal prices. The Rand is already at some of the weakest levels we have ever seen against the Pound and yesterday the GBPZAR rate fleetingly spiked to R21.45 at one stage but I suspect we may see it rise through that level again in the weeks ahead because low commodity prices are here for some time to come.

The Dollar lost a little ground yesterday in the midst of the turmoil but recovered its composure before the day end. Maybe it will advance on this afternoon's data which includes US housing and consumer confidence figures, both of which are expected to be upbeat.

Overnight tonight we will get New Zealand's trade balance data; poor figures are forecast as Australia and China, NZ's largest export markets, are in the doldrums and dairy prices are depressed. The Kiwi Dollar was hit hard during yesterday's rout and it remains weak this morning. NZ$2.42 is the crucial level. If the Pound can close a day above there, gains towards 2.57 are possible.

And a woman in ERIE, Pennsylvania called the police when she heard an intruder in her house. The police discovered the man had already taken a shower and done his laundry before they arrived and he was arrested for a slew of public order and trespass offences. I know it would have been a poor result for the police but it would have made a better headline if he had got clean away.