Boy, That Escalated Quickly; China Goes Limit Down

January 5, 2016

Boy, That Escalated Quickly; China Goes Limit Down:
Boy, that escalated quickly… Easing into 2016? No chance!

From yesterday’s open, it was very clear that the session’s theme was going to be risk-off. The commodity currencies were smashed from the open, even before traders got to digest the day’s data out of China. By the time Chinese Caixin Manufacturing PMI missed expectations, the damage had been done but little did we know that it was just going to be the beginning!

It was all down hill from there, with the Chinese stock market even having to implement their limit down circuit breaker designed to halt panic selling (yes, this is DAY ONE of 2016) after falling 7%!

CHINA50 Daily:
Click on chart to see a larger view.

At Vantage FX, you can take advantage of moves on the Chinese stock market via indices trading on the CHINA50 contract. I’ve spoken before about how technical this market behaves and yesterday’s moves were no different with a clean double top followed by a trend line break.

Turning to US stocks who had to deal with the fear on the back of Asian, then European carnage. They weren’t immune to the falls, but once again technical levels stepped in to halt the slide. Clean!

SP500 Daily:
Indices chart, SP500 Daily, 160105
Click on chart to see a larger view.

“The last two times the first day of the year was down >1% were ’08 and ’01.”

I’ll just leave that one here. Happy New Year!


Chart of the Day:
The Chinese inspired, risk-off market tone saw both the Aussie and Kiwi hit hard on the day. I’ve got Kiwi in an interesting spot here.

NZD/USD Daily:
Forex Chart, NZD/USD Daily, 160105
Click on chart to see a larger view.

The Kiwi daily chart is fairly self explanatory, with a huge bearish trend line having been the dominant theme for such a long period of time. With the market rallying into the Fed hike (ironic, right?) forming some sort of flag pattern, price now sits back at resistance.

The fact that price broke-out of trend line resistance but was immediately smacked back down is the biggest tell for the bearish Kiwi case heading into 2016.

NZD/USD 4 Hourly:
Forex chart, NZD/USD 4 Hourly, 160105
Click on chart to see a larger view.

The 4 hourly chart shows the fake-out perfectly, with a break followed by a re-test that just saw consolidation along the trend line before the bears took back control. Talk about sucking buyers in and then pouncing!

Kiwi is bearish, but I think you’ll get another rally to sell into before any of those short term trend lines that everyone is watching, breaks. It’s coming, just be patient.


On the Calendar Tuesday:
EUR Spanish Unemployment Change
EUR German Unemployment Change
GBP Construction PMI
EUR CPI Flash Estimate y/y
EUR Core CPI Flash Estimate y/y

Do you see opportunity trading Forex? Take a look at the Vantage FX MT4 platform, with a free $50,000 demo trading account.

Dane Williams – @VantageFX

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