Not two days into the new trading year and it feels like the bottom is falling out. Winter has finally arrived in the northeast and Wall Street is poised for another tough day filled with difficult trading conditions. Following what may have been the worst “first trading day” of the year in some time, stocks around the world slipped a little more on Tuesday as China was unable to stop the bleeding. It was more of a mixed bag during the European session but nothing to write home about, as safe havens continue to outperform with the big dollar, Japanese yen and Swiss franc continuing to find strong buying support.
While trading during the Asian session could be described by some as calm, early positive sentiment was quickly washed out and most risky assets fell for a second straight day. The Chinese central bank was rumored to have intervened in the FX markets on Tuesday, seeking to stabilize CNY trade. On Monday, it was the Chinese regulators which enacted circuit breakers in the equity markets to halt trading which saw the Shanghai Index close lower by more than 7%. Today, Shanghai managed to stop the bleeding, closing up 0.2% but all other major indices were lower for a second straight day. In the currency space, it was another losing day as the Australian and New Zealand dollars lost ground to the greenback and the Japanese yen rose again amid risk-off trade. Chinese trade balance on Friday closes out a light data week so we should expect equities, commodities and geopolitical events to guide price action during overnight sessions.
The euro fell lower again overnight, losing ground to most of its major counterparts. Worries about the situation concerning Saudi Arabia and Iran have picked up today, devoid any top tier data, as the market shied away from EU inflation data. It was reported that Euro-area prices rose 0.9% last month, slightly lower than the 1% which was expected, which further weakened the euro, which had fallen 0.7% lower at one stage. The British pound, which has been under heavy selling pressure, continued to slide lower today despite better than expected UK construction PMI, which rose to 57.8 in December. EUR/GBP, which had recovered nicely over the last few weeks, could offer some support to Sterling in the event profit taking pushes the cross lower over the next few days. Currently testing multi-week highs, EUR/GBP has been confined to a range since early autumn.
As earlier reported, the US dollar continues to find safe haven demand amid the most recent risk-off trade. With no top tier data on today’s calendar, the big dollar should be guided by equity performance. At present, North American stocks are poised to open lower for a second day, following Asian and European bourses. With much of this week’s key data events back data (US NFP on Friday), more broad themes will guide the FX space. The Canadian dollar, which mounted a very brief comeback last week, slid lower again, as risky currencies and commodities fell to begin the new year. Oil prices are lower today, which should keep the Loonie a sell on any rally. USD/CAD has lulled into a very tight trading range with key psychological levels limiting upside trade but not enough momentum in the market to generate demand from CAD$ bulls.
Further reading:
Long USD Exposure In Spot Starting To Look Attractive – BNPP
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