After a quiet weekend on the news front, it looks like some USD profit taking has set in on USD longs as the holiday wind-down gets underway.
I suspect Changi and Hong Kong Airports were busier over the weekend then Asia markets this morning, as the great Expat migration home for the holidays got underway. Certainly, nothing beats intel on the ground, and my social media account was buzzing with “travelling to” updates. What this most likely means, is that we are, somewhat belatedly, into the holiday wind-down in the markets as well. Although as I write that, the phrase “famous last words” does come to mind!
The lack of activity, a light news weekend and economic calendar, has seen profit taking set in on USD longs after a breathtaking seven-week run. China took the opportunity to set a much stronger than expected CNY fix at 6.9312 which has also given the USD sell-off some fresh legs.
Taking a lot around the Asia markets this morning,
Has dropped from 118.00 to 117.40 lows in early Asia trade. USD/JPY is sitting in an 117.00/119.00 range for now and the 119.00 area, as I spoke about Friday, is significant. 118.00 now becomes short-term resistance. The US/Japan yield spread will continue to be the main driver of price action this week.EUR/JPY
Continues to be marooned in a 122.00/124.00 range with a daily close above or below these levels signalling the next move.EUR/USD
The single currency may see some more action later today with the release of the German IFO. The storm clouds gathering over Europe in 2017 is a story for another day, short-term though, EUR has support at 1.0400 and then 1.0365, the lows of last week. Above, resistance is at 1.0375 and 1.0400 and 1.0500.AUD/USD
The Australian Government released its mid-year economic and fiscal update about an hour ago. This has been closely watched, as the market is increasingly nervous S&P will downgrade the countries much coveted AAA credit rating. Broadly the numbers still predict a return to surplus in 2020/21 but with lower GDP and bigger deficits on the road there.
09:00 *(AU) AUSTRALIA MID-YEAR ECONOMIC AND FISCAL OUTLOOK (MYEFO): Maintains FY20/21 target for return to surplus; Cuts FY16/17 & FY17/18 GDP
Outlook Underlying budget deficit forecast:
– FY16/17: -A$41.5B v -A$37.1B prior forecast in May
– FY17/18: -A$28.7B v -A$26.1B prior forecast in May
– FY18/19: -A$19.7B v -A$15.4B prior forecast in May; Net debt seen peaking at 19% of GDP in FY18/19
– FY19/20 Deficit -A$10.0B-
Affirms To return to budget surplus by: FY20/21 v FY20/21 prior in May
Real GDP growth forecast:
– Cuts FY16/17 to 2.0% v 2.50% prior forecast in May
– Cuts FY17/18 2.75% v 3.0% prior forecast in May
The AUD had traded heavily initially into the release. However, since then both Moody’s and Fitch have both said the figures are consistent with maintaining their respective AAA rating. This has seen a small bounce in AUD.
Resistance lies at 7315 and then 7335, support at 7270 and then 7265 in the short term.USD/CNH
Has been one of the biggest movers today. Falling from 6.9665 to 6.9430 as the PBOC surprised the street with a stronger CNY fix at 6.9312. I suspect theyre using a quiet day to turn the screws on some of the USD longs out there. Adding to the CNH rally was also the announcement of yet another pseudo currency control as the Chinese authorities continue to clamp down on domestic outflows.
07:48 (CN) China regulators have imposed a ban on Chinese residents purchasing insurance in Hong Kong from swiping their credit cards multiple of times in a bid to circumvent curbs intended to slow sales – Purchases of insurance in Hong Kong using MasterCard and Visa credit cards issued in China have been capped at $5K per insurance product.- Mainlanders cannot exceed the new limit by simultaneously purchasing multiple products from the same insurer.
– Purchases of insurance in Hong Kong using MasterCard and Visa credit cards issued in China have been capped at $5K per insurance product.- Mainlanders cannot exceed the new limit by simultaneously purchasing multiple products from the same insurer.
– Mainlanders cannot exceed the new limit by simultaneously purchasing multiple products from the same insurer. – Source
This continues the trend of plugging fingers in the leaky dyke that is the China capital account as a stronger USD sees more and more Chinese using any means necessary to move money out of the country. Clearly, the run down in foreign reserves it causes is worrying the authorities more and more.
Chart-wise, USD/CNH has support around the 6.9300 and then 6.9200 level. Resistance is now up at the highs at 6.9700.Hang Seng Index
The closely correlated Hang Seng Index hasn’t like that insurance announcement either, Breaking support at 21,870 and also the 100-day moving average at 21,830. Both now become resistance. The next support is at 21,670.USD/MYR
The shark continues to circle here with the MYR trading at its lowest sine the 1998 Asia crisis this morning. The Bank Negara rules are spooking foreign investors and banks as the Malaysians take the sledgehammer to crack a walnut approach to managing outflows. The USD/MYR perhaps sums up the struggles many emerging economies with USD pegs and currency controls will face in 2017 with higher US Yields and a stronger USD.
About Jeffrey Halley
Based in Singapore, Jeffrey has over 25 years experience in the financial markets, having traded currencies, options, precious metals and futures. Jeffrey started his career at Barclays Bank in New Zealand. However he has spent most of it in London and Asia. Jeffrey focuses on the Asia time zone across asset classes. A regular commentator on business news TV and Radio, he is originally from New Zealand and holds an MBA from Cass Business School, London.
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