With US markets closed for President’s day today, it’s likely to prove a slower start to the week, but as we know, it’s not just about the US anymore, with much of the recent volatility being triggered by events beyond US shores. Overnight, we’ve seen weaker than expected data in Japan showing the economy contracted some 0.4% in the final quarter of last year. Japan has contracted in half of the previous 16 quarters, with only one period of contraction more than two quarters. In other words, it remains an economy struggling for sustained momentum. Data from China has also been mixed with exports falling markedly, although an even larger fall in imports allowed for a better than expected reading on the trade balance data. The volatility in markets continues unabated, with the Nikkei more than reversing Friday’s weakness, up more than 7% towards the close. USDJPY has reversed upwards as well, but in a relative sense the yen still remains on the firm side for the month so far.
Elsewhere in the world of FX, the modestly corrective tone continues, with the Aussie higher from the Thursday lows and the euro also correcting from the firmer tone seen of late. Equities also starting on a firmer footing, with financials leading the gains once again. Gold is more than 2% weaker in Asia trade, but after the sharp gains seen last week, that’s merely a rounding area in light of recent moves. The yuan has appreciated substantially, with comments from PBOC Governor also helping over the weekend to curb speculators on the currency. Note that ECB President Draghi speaks in front of the European Parliament later today (scheduled for 14:00 GMT) and in light of the lack of US data, this could drive sentiment in the latter half of the European session.
Further reading:
EUR/USD tests the upside – false break so far
Traders, Beware Of A Near-Term Reversal In The US Dollar – CIBC
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