London Forex Report: 2016 Starts With Risk Off Rout
London Forex Report: The plunge in China equities not only triggered a trading halt but also prompted broad-based sell-offs in major equities globally. This, coupled with rising geopolitical tension in the Middle-East, resulted in a bout of risk-off sentiments as the new year begins. Weaker than expected manufacturing prints from the US and UK further dampened the already fragile growth outlook. In spite of weakness on the data front, two Fed officials reiterated that US fundamentals remained sound and temporary volatility in the financial markets does not post significant risk to the economy. USD recovered from an early decline, lifted by demand for safety as major markets tumbled sparked by weakness in Chinese equities. The USD Index bounced off intraday low near 98.04 to close 0.18% higher at 98.86.
EUR/USD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: As 2016 kicked off, the EUR traded in a narrow range during the Asian Session and made the intraday high of 1.0946 in early London Session as risk-off mood encouraged EUR buying. After soft German inflation data released yesterday, the EUR/USD dropped to 1.0780 as traders believe that more easing maybe on the cards.
Technical: While offers at and just above 1.0950 contain upside attempts, expect rotation south to test bids at corrective symmetry objective at 1.0730; expect buyers to emerge 1.0750/30 on the initial test
Interbank Flows: Bids 1.0750 stops below. Offers 1.0950 Stops above.
Retail Sentiment: Bearish
Trading Take-away: Sidelines
GBP/USD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: GBP hit a nine-month low yesterday, as worries that UK growth would not be strong enough to justify an interest rate rise this year, and uncertainties over a possible “Brexit” from Europe also weighed on the currency. Figures showed UK manufacturing growth slowing again in December although other numbers released at the same time showed UK consumer credit grew at its fastest rates in almost a decade in November.
Technical: While 1.4850 caps intraday upside expect a drift lower to retest bids at 1.4565 the 2015 lows.
Interbank Flows: Bids 1.4650 stops below. Offers 1.48 stops above
Retail Sentiment: Bullish
Trading Take-away: Short from 1.48 for 1.45
USD/JPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: In the Asia trading session yesterday, JPY traded at the highs of 118.68 , which was the highest level in more than two months as heightened tensions in the Middle East and disappointing data out of China supported a risk-off mood, encouraging JPY buying. Bank of Japan Governor Haruhiko Kuroda signaled his readiness yesterday to take even bolder steps if necessary to meet two percent price target.
Technical: While 120 caps intraday upside attempts, expect a sustained break of 118.50 to test bids at and just below the 118 figure. A breach of 120 opens the potential for correction to test 121
Interbank Flows: Bids 118.50 stops below. Offers 120 stops above
Retail Sentiment: Bullish
Trading Take-away: Sidelines
EUR/JPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: With the turmoil in the Chinese and global equity markets on Monday, EUR/JPY traded below the 129 mark for the first time in two months. Wednesday’s services and composite PMIs will be eyed as a further catalyst for further risk off trading which will likely weigh further on the cross.
Technical: While 130 caps intraday upside reactions, expect a grind lower to retest bids at 128.60/50; failure here opens 2015 lows at 126.50’s as the next downside objective.
Interbank Flows: Bids 128.50 stops below. Offers 130 stops above
Retail Sentiment: Bullish
Trading Take-away: Sidelines
AUD/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Fundamental: AUD plummeted to start its new year touching an intraday low of 0.7153 amid intensified market risk-off sentiment due to the falling global stock markets. Driven lower also by disappointing manufacturing PMI data from China and continuous fall in commodity prices, the currency pair opens slightly higher this morning at around 0.72.
Technical: While .7250 caps intraday upside expect a test of .7150 ahead of pivotal.7100. A breach of .7250 opens a move back to test offers at the range highs of.7340
Interbank Flows: Bids .7150 stops below. Offers .7250 stops above
Retail Sentiment: Neutral
Trading Take-away: Sidelines
USD/CAD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish
Fundamental: CAD weakened by the most in more than two weeks, distressed by a sharp fall in Chinese shares that weighed on commodity-linked currencies and global stock markets. Canada’s manufacturing sector contracted for the fifth straight month as activity fell to a record low in December. The price of oil fell after an early rally as concern about Middle East tensions gave way to worries about slowing global economic growth.
Technical: Bulls have the ball while 1.37 supports, expect a grind higher to test stops above 1.40 while 1.3840 caps intraday downside. A close below 1.37 would ease the near term bullish bias.
Interbank Flows: Bids 1.3850 stops below. Offers 1.40 stops above
Retail Sentiment: Bearish
Trading Take-away: Sidelines
