Analys från DailyFX
Which Currencies have been Affected by Chinese Equity Volatility?
– Volatility in China’s Shanghai 300 has led to similar volatility in FX
– The Australian Dollar and Japanese Yen are the most correlated
– Continued volatility may lead to similar
The previously high-flying Shanghai Composite index has pulled back from recent highs, and falling stock prices have contributed to similar declines in the Australian Dollar and broader markets. Which currencies and what might drive similar effects in the future?
A similarly sharp drop in the Australian Dollar pushed it below the key $0.7600 mark in in early June, and its correlation to the Shanghai Shenzhen 300 hit its most positive since April.
Australian Dollar tracks Moves in the Chinese Shanghai Shenzhen 300 Index
Data Source: Bloomberg. Chart Source: R. Prepared by David Rodriguez
The Australian Dollar is especially susceptible to any volatility in Chinese financial markets given the Australia’s strong links to the Chinese economy. Given further pressure on its largest trading partner, the Reserve Bank of Australia may be forced to ease monetary policy and cut interest rates in order to stimulate domestic growth. Such a shift would mark a clear reversal in tone from the RBA and we might expect the Australian Dollar to fall further.
New Zealand Dollar Correlation to Shanghai 300 Remains Weak for Now
Data Source: Bloomberg. Chart Source: R. Prepared by David Rodriguez
The New Zealand Dollar on the contrary has actually proven less correlated to the Shanghai 300 amidst recent volatility. Compared to its peer, New Zealand has a lesser dependence on China’s economy. However, it’s doubtful whether the momentum in correlation could sustain; New Zealand may face a chain effect passed by its own largest trading partner in Australia.
Another currency that is largely affected by the China’s stock market is the Japanese Yen. Acting as the risk sentiment of the market, the Japanese Yen is always the save-haven for investors when turmoil rises. The Japanese Yen hit fresh monthly highs amid volatility sparked China’s equity market, the Greek debt crisis, and uncertainty surrounding Fed policy.
US Dollar/Japanese Yen Correlation to Shanghai 300 is Quite Strong
Data Source: Bloomberg. Chart Source: R. Prepared by David Rodriguez
The move boosted the correlation between the USD/JPY and the Shanghai Composite index, and we expect the Yen may continue to do well amid broader financial market uncertainty.
Forex Correlation Summary
Forex correlations against major currencies, Crude Oil, and the SP 500 index for the past 30 calendar days:
Read a guide on understanding the forex correlations summary chart.
Written by David Rodriguez, Quantitative Strategist and Shuyang Ren for DailyFX.com
What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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