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Risk-off returns along with Japan, German Ifo, US data – In focus

FXStreet (Mumbai) - The Japanese traders returned to markets on Thursday after a three-day long break and brought along risk-sentiment back as the Japanese stocks tumbles catching up with latest global sell-off, fuelled by mounting worries over global growth prospects.

Key headlines in Asia

Japan returns, key events ahead - Westpac

Asian stocks trade mixed, Nikkei tumbles on re-open

Fonterra raises milk-price forecasts after reporting large profit

Dominating themes in Asia - centered on JPY, AUD, NZD

A data-quiet Asia, with liquidity flowing back in the markets as the Japanese markets re-opened after a long break. A renewed risk-aversion wave hit markets after the Nikkei dropped sharply, diminishing the bids for riskier currencies such as the US dollar.

The Japanese yen regained lost ground versus the US dollar, with USD/JPY losing -0.19% to 120, recovering from session lows struck at 119.86. Whilst the EUR/USD pair trades in a flat-lining near 1.1184, bouncing-off lows reached at 1.1165 in early moves. Gold emerged the top performer amongst the safe-havens, rising 0.22% to $ 1134.

The Antipodeans traded mixed and extend their choppy-trend, with the Aussie wavering around 0.70 handle, easing-off highs posted at 0.7023. While the Kiwi stood resilient to the persisting risk-off moods and remained strongly bid on the latest Fonterra announcement, completely shrugging off widening NZ trade deficit data. NZD/USD now trades 0.29% higher at 0.6295, fading a spike to 0.6308 levels.

On the equities space, Asian markets traded mixed, with Japan’s Nikkei deep in the red near 17,670, losing -2.20%. Australia’s S&P ASX index rallies 1.13% to 5,054, lifted by the banking and resource stocks. While the Chinese indices, the Shanghai Composite pared gains and trades 0.27% to 3,124. Hong Kong's Hang Seng index fell -1% to 21,.

Heading into Europe - centered on EUR, GBP

After a series of lackluster PMI reports from the Euro zone and a non-event Draghi’s testimony on Wednesday, today’s EUR calendar offers a set of German macro data for release with the Ifo reading expected to be the main highlight. While we also have ECB’s Targeted LTRO announcement due later in the session.

The closely watched Ifo Business Climate Index in Germany is expected to edge down to 107.9 in September, from the 108.3 booked last month. The Current Assessment sub-index is seen as remaining at the 114.8 booked a month ago. The Ifo Expectations Index - indicating firms' projections for the next six months - is expected to make a slight tick down to 101.6 from 102.2 registered in August.

ECB Governing Council member Erkki Liikanen will speak at a Bank of Finland quarterly press briefing.

Looking ahead, we have a data-filled New York session with the US durable goods order data likely to emerge the main market mover. While weekly jobless claims and new home sales data from the US will be also closely eyed.

The market expects the entire big-ticket tally to reveal a 2.2% plunge in orders after a drop in output of durable goods in the Fed's industrial production report. Similarly, the market is expecting that orders for durable goods other than transportation will edge 0.2% higher in August. While the new home sales data should see an increase to 515,000 unit purchases in August.

EUR/USD Technicals

Valeria Bednarik, Chief Analyst at FXStreet noted, “The pair is finding some selling interest as earlier this week in the 1.1200/10 price zone, but the 1 hour chart shows that the price is well above a bullish 20 SMA, whilst the technical indicators have lost their upward strength, but hold in positive territory, suggesting the upward movement may extend, as long as buyers defend the 1.1160 level, the immediate support.”

“In the 4 hours chart, the movement seems mostly corrective so far, as the price was unable to overcome a strongly bearish 20 SMA around the mentioned high, whilst the technical indicators continue recovering from oversold levels, but remain in negative territory.”

Japan All Industry Activity Index (MoM) dipped from previous 0.3% to 0.2% in July

Japan All Industry Activity Index (MoM) dipped from previous 0.3% to 0.2% in July
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NZDUSD trading under pressure - Westpac

Sean Callow, Research Analyst at Westpac, notes that NZD/USD was under pressure in line with AUD in NY but bounced about 40 pips to 0.6280 as Fonterra announced an increase in its farm gate milk price forecast for the 2015/16 season to NZD4.60/kg of milk solids – up from their earlier estimate of NZD3.85.
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