AUD/USD: 0.6855EUR/USD: 1.0905Another selloff in the Chinese stock markets on Friday produced a hectic finish to the week elsewhere, culminating in a steep selloff in US stocks and also in oil. The long term sanctions that have been imposed on Iran were lifted over the weekend, which will bring yet more supply onto the market and should keep the pressure on the downside in the week ahead. A huge move out of risk assets saw the commodity bloc currencies take another battering while the main beneficiaries, once again, were the Yen and Gold. This looks to be a trend that is set to continue, led largely by events in China, and we will see an early hint of what to expect with some major Chinese data due for release on Tuesday, led by the Q4 GDP and the Retail Sales. The other main event of the week will be the ECB Meeting (Thur), at which no change to policy is expected and the focus will be on the tone of the Statement and Mario Draghi’s Press Conference. There is plenty else besides to make for a very active week, although we may see a bit of a reprieve today, being the US MLK Birthday holiday. There is little data from the EU today. Asia gets the Australian New Vehicle Sales and the China House Price Index is also due. From Japan comes the Industrial Production, Capacity Utilisation.
AUDUSD and the rest of the commodity bloc got were sold heavily into the weekend as the ongoing concerns over the economic outlook in China continue to weigh heavily on markets. The Aud was not given any reprieve and fell heavily, to a low of 0.6826 against the dollar, to 79.56 against the Yen, and to 1.6057 against the Euro.
More of the same would appear to be in store as long as Chinese markets continue to implode, and in economic terms the main focus for the coming week will be on Tuesday’s Chinese data. This will comprise the Q4 GDP (exp 6.8%yy, 1.7%qq), Retail Sales (exp 11.3%yy), Industrial Production (6%), and Urban Investment (10.2%) and will potentially provide the direction for the rest of the week for the Aud (and probably everything else!).
Note that over the weekend the PBOC announced that they will raise the reserve requirement ratio (RRR) of CNH deposits placed onshore by CNH clearing banks in an attempt to stabilize the Yuan, commencing on 25 Jan and is latest effort to stem speculation in the currency. The initial knee-jerk impact could be a lower spot price in the $CNH spot while the forwards head higher. and could have a flow on effect elsewhere, potentially underpinning the Aud from further losses early on Monday.
As we said before, once below 0.6900 - which we now are - there is little to support the Aud until 0.6800 (minor) and then 0.6769 (29 March 2009 low). A break of this would then head towards the 15 Mar 2009 low at 0.6527 and on to the 1 March low at 0.6284. Things could potentially begin to accelerate very quickly on the downside so will be worth watching very closely. Much will depend on China, and if the Government moves to prop up those markets then we could see a return to a more positive risk sentiment although I think if that happens the Chinese authorities will be fighting against the tide.
On the topside, the initial resistance will be seen at 0.6900, beyond which could see a bounce towards 0.6915 (minor) and on to 0.6945 (23.6% of 0.7327/0.6826) although this seems unlikely to be seen today. The 4 hour charts may be in the early process of building some bullish divergence and so will be worth watching as that could produce a bit of a topside squeeze but overall, the medium perm players will be looking for levels to sell into so any potential strength in the Aud would appear to be temporary.
Jim LanglandsFX Charts
