Forex Afternoon Wrap – 25/08

China cuts interest rates and RRR to quell market fears

Key Notes:

• Australia CB leading index m/m -0.2% vs. 0.2% previously
• China CB leading index m/m 0.9% s. 0.6% previously
• New Zealand inflation expectations 1.9% vs. 1.9% previously
• Germany final GDP q/q 0.4% vs. 0.4%
• German Ifo business climate 108.3 vs. 107.6
• US HPI m/m 0.2% vs. 0.4%
• S&P/CS Composite 20 HPI y/y 5% vs. 5.1%

Later

• Flash services PMI
• CB consumer confidence
• New home sales
• Richmond manufacturing index

A day after the market turmoil which saw global equities nosedive, the markets are showing signs of a recovery as today’s Asian trading session saw a sense of quiet and calm. The Nikkei 225 index closed the day for a modest loss of -3.96% while the Hang Seng index was up 0.72%. China’s Shanghai composite remained weak losing a further -.763%. The much anticipated move from the PBoC came today as the Central bank cut the benchmark interest rates by 25bps to bring the one year rate to 4.6% while also cutting the rate for deposits to 1.75% and reducing the cash reserves. The move by the PBoC might have helped to ease investor concerns.

The Asian session saw a subdued trading compared to yesterday but the general market theme from yesterday prevailing. The Aussie and the Kiwi were weak albeit lifting off from lows since yesterday. The Yen was weaker for the most part of the day as the USDJPY continued to retreat from the lows of 116.5. New Zealand’s inflation expectations which came in unchanged from the previous quarter at 1.9% gave some boost to the Kiwi against the weaker Aussie.

The markets were seen pulling back from their lows since yesterday with the European equities trading in the green. The German DAX was up 4.15%. The Euro retreated from the highs of 1.17 seen yesterday and was trading at 1.149 a level which marks the recently broken support. As long as support at 1.148 – 1.144 holds, EURUSD could see further upside gains in store, but a break below the support could push the single currency back to the 1.113 region of support. Economic data from Europe saw the German GDP match estimates at 0.4% quarterly growth while the Ifo business climate was up 108.3, beating estimates of 107.6.

GBPUSD stayed flat for the day and retreated after testing the highs of 1.581. There were no economic releases from the UK today.

The US trading session opened without any major hiccups after yesterday’s market crash. The Greenback was seen edging higher after the index hit support near 92.65. For the day, the US Dollar Index posted gains of 0.9%.  Crude Oil was also seen edging higher testing the highs of 39.80, up 3.9% for the day. Gold futures remained weak today, falling -0.38% after a brief test to the highs of 1170.

Economic data for the remainder of the day includes the US Flash services PMI and New home sales data.