The Asian session served a contractionary China Caixin manufacturing PMI which fell to levels not seen in six and a half years. Instability shrouded the financial markets as concerns for the world’s second largest economy were reconfirmed by market participants. There were already worries about the stability and growth of China as a whole and this decline in the flash PMI has reinforced these anxieties, resulting in the China markets being exposed to more weakness. This weakness within the China economy may have hit a stage where the government will likely remain vigilant to relieve the strain and promote stability in the domestic markets.
The instability from China has trickled down to the Asia markets and as a result most Asian equities have ventured back into the red territory. As of writing the Shanghai Composite Index which has been meandering for the past two trading days has sunk back into the negative, currently trading 1.15% lower. Data from China continues to disappoint with the deep economic downturn becoming more visible. Despite the additional fears that economic releases from China are weaker than what the official figures suggest, Chinese State Councilor Yang Jiechi remains defiant that China would retain its 7% growth target which would be the motor for global expansion.
With the Fed establishing that a rate hike may be based on the global and financial developments relating to growth in China, a positively correlated relationship with the USD and economic data releases from China exists. The vulnerability the China markets may experience from a contractionary flash PMI which has been the lowest in 78 months will most likely ripple back to the USD exposing it to further vulnerability and weakness. The potential losses the USD may face due to the uncertainty revolving around the China markets should translate to bullish momentum regained within Gold.
In today’s European session, flash PMI will be released for both France and Germany in which a positive announcement may inspire some upside momentum within the EUR. The Eurozone area is already engaged in a oneway battle with a deteriorating rate of inflation and has received continual punishment from the decline in commodities and decelerating growth in emerging markets. ECB President Draghi will be speaking on Wednesday to shed more light on the developments within the Eurozone area and possible policy measure which may be enforced to promote economic stability within Europe.
The EURCAD is in the phase of becoming technically bearish on the daily timeframe. Prices have breached the daily 20 SMA but the MACD still trades to the upside. A breach below the 1.4650 support may confirm the start of the downtrend with the first relevant support based at 1.4400.
The riskoff environment has inspired appetite for the JPY. The NZDJPY is technically bearish on the daily timeframe. Prices are below the daily 20 SMA and the MACD has crossed to the downside. There are lower highs and a breach below the 74.50 support may open a path to the next relevant support at 72.50.
The NZDUSD remains bearish on the daily timeframe as long as prices can keep below the 0.6400 level. Prices are trading below the daily 20 SMA and the MACD has crossed to the downside. A breakdown below the 0.6250 support may open a path to the next relevant support at 0.6050.