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After the excitement of last week, FX markets are back to reality, which includes fresh concerns regarding the fine balancing act going on in China. Asian stocks and key commodities are starting the week softer, after comments from the Chinese Finance Minister played down the possibility of more stimulus from the government. This is the issue China has, namely that is needs to see the economy slow down and move away from excessive capital expenditure, but not too much that it starts to cause problems elsewhere, including civil unrest. We’ll get more on that front early tomorrow with the release of the HSBC manufacturing PMI index, the last reading hanging just above the key 50.0 level at 50.2. Iron ore prices have continued lower last week and overnight, with copper also retracing lower, currently trading around a 3 month low.

Relating this back to FX markets, it’s not surprising to see the Aussie on the back foot, holding just above the 0.89 level as we come into European session. After the volatility of last week, sterling is finding its feet again, having moved above the 1.63 level on cable seen into the Friday close. This could be the one to watch going into month end, should investors who had shunned sterling based assets as the Scottish referendum result loomed ever larger start to reposition into month end. Elsewhere, the data calendar is relatively light today, with just US new home sales released at 14:00 GMT. Perhaps of greater interest will be ECB President Draghi appearing before the European Parliament (economic and monetary affairs committee) given the intense focus on ECB policy and the threat of deflation in the eurozone. EURUSD continues to languish near to the lows for the year, currently at 1.2826.

Further reading:

AUD/USD to 0.75 says Dr. Doom – 5 reasons

EUR/USD Sep. 22 – Recovering from the blows ahead of Draghi’s testimony