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Yen and Dollar Soar on Risk Aversion, EUR/USD Downside Breakout Imminent

Yen and Dollar are the strongest ones today as global stock markets are back in selloff mode. Sentiments turned sour after weaker than expected Chinese sales and production data. Adding to that, Eurozone came showed further decline in growth momentum, verifying ECB’s concerns. China’s concessions on retaliation tariffs on US autos are a positive news, but couldn’t turn things around.

Dollar is gaining a bit extra advantage after slightly better than expected retail sales data. But that’s just a matter of 0.2% growth versus 0.1%. DOW futures are pointing to lower open, and we’ll see if selling would intensify onwards. Staying in the currency markets, New Zealand and Australian Dollar are the weakest ones on risk aversion naturally, in particular on Asian slowdown. Sterling is the third weakest today on Brexit worries. Euro isn’t too far away though.

In other markets, FTSE is currently down -0.66%, DAX is down -0.65% and CAC is down -1.05%. German 10 year yield is down -0.024 % 0.262. Italian 10 year yield is up 0.006 at 2.975. Earlier today, Nikkei closed down -2.02%, Hong Kong HSI closed down -1.62%, China Shanghai SSE dropped -1.53%. Singapore Strait Times dropped -1.09%. Japan 10 year JGB yield dropped again by -0.0191 to 0.035.

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Technically, AUD/USD is finally moving away from 0.7199 support, confirming near term reversal. Retest on 0.7020 low should be seen next. Steep selloff is seen in EUR/USD and EUR/JPY and they are likely having downside breakout finally. 1.1267 support and 124.79 support should be watched closely to confirm.

Released from the US, retail sale rose 0.2% mom in November versus expectation of 0.1% mom. Ex-auto sales rose 0.2% mom, matched expectations.

China announced to suspend retaliatory tariffs on 211 items of US autos and parts for 3 months

China Ministry of Finance announced to suspend retaliation tariffs on US autos and parts for 30 days, as a result of the meeting between Xi and Trump in Argentina. The statement noted that important consensus was reached between the two heads of state. And in order to implement the consensus, China will suspend the additional tariffs imposed this year on 211 items for three months from January 1 to March 31, 2019. The lists include 25% tariffs on 28 items in list 1, 25% tariffs on 116 items in list 2, and 5% tariffs on 67 items in list 3.

Also from China, retail sales rose 8.1% yoy in November, below expectation of 8.8%. Industrial production rose 5.4% yoy, below expectation of 5.9%. Fixed assets investments rose 5.9% ytd yoy, matched expectations.

Eurozone PMI composite dropped to 49-month low, underlying growth rate slowed across Eurozone

Eurozone PMI manufacturing dropped to 51.4 in December, down from 51.8, missed expectation of 51.9. It’s a 34-month low. PMI services dropped to 51.4, down from 53.4, missed expectation of 53.4. It’s a 49-month low. PMI composite dropped to 51.3, down from 52.7, a 49-month low.

Chris Williamson, Chief Business Economist at IHS Markit said in the release that “While some of the slowdown reflected disruptions to business and travel arising from the ‘yellow vest’ protests in France, the weaker picture also reflects growing evidence that the underlying rate of economic growth has slowed across the euro area as a whole.”

And, “While GDP growth in the fourth quarter as a whole is indicated at almost 0.3%, the surveys point to quarterly GDP growth momentum slipping closer to 0.1% in December alone. Forward-looking indicators such as new orders and future expectations remaining subdued suggest that demand growth is stalling, adding to downside risks to the immediate outlook.

Germany PMI manufacturing dropped to 51.5, down from 51.8, missed expectation of 51.7. It’s a 33-month low. PMI services dropped to 52.5, down from 45.5, missed expectation of 53.5. It’s the lowest in 7 months. PMI composite dropped to 52.2, down from 52.3, a 48-month low.

France PMI manufacturing dropped to 49.7 in December, down from 50.8, and missed expectation of 50.7. It’s the worst reading in 27 months. France PMI services dropped to 59.6, down from 55.1 and missed expectation of 54.8. It’s the lowest level in 34 months. PMI composite dropped to 49.3, down from 54.2. It’s a 30-month low and the first contraction reading in 2 1/2 years.

Comments from ECB de Guindos, Vasiliauskas and Nowotny

ECB Vice President Luis de Guindos defended the central bank’s decision to ended the asset purchase program this month, without any further stimulus exit said. He said that “We’re in a dark room that sometimes gets a bit darker, and when you are in a dark room you have to be very cautious and try to keep your optionality at the maximum level,”

Governing Council member Vitas Vasiliauskas warned of