Article Highlights

  • AU AIG services PMI: 46.3 vs. 48.2 previous
  • UK BRC shop price index: -2.0% vs. -2.1% previous
  • China’s Caixin services PMI: 50.2 vs. 52.3 expected, 51.2 previous
  • PBoC sharply devalues yuan, causes risk aversion
  • North Korea claims earthquake was a “successful hydrogen-bomb test”
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The yen was the biggest winner during the forex trading session, thanks to a couple of reports from China and North Korea fuelling risk aversion.

Major Events:

China issue 1: Caixin services PMI – When the world’s largest economy continues to have hiccups, you can bet the best holiday gift you’ve received that some forex traders would act like China’s about to get rushed to the hospital. Data printed a couple of hours ago revealed another disappointment in the form of Caixin’s services PMI. The report clocked in at 50.2 when market players had been expecting an improvement from 51.2 to 52.3. Not a good sign especially after last Monday’s PMI disappointment.

China issue 2: More yuan weakness –The People’s Bank of China (PBoC) then grabbed the headlines when it pegged the USD/CNY at 6.5314, a high not seen since April 2011 and the sharpest weakening in two months. Talk about meaning business! The aggressive move spooked forex traders, enough to push the yen higher across the board and the Aussie and Kiwi deep in the red.

China issue 3: Extension of ban on major shareholders from selling – Not really a forex mover, but probably a factor on why the weaknesses in currencies weren’t reflected in China’s stocks. Word around the hood is that China would keep the ban on major company stockholders selling their shares until new policies are set in place. If you recall, the ban was scheduled to end on January 8.

North Korea conducts hydrogen-bomb test – A few hours earlier a magnitude 5.1 earthquake was detected near North Korea’s test sites. The government is claiming it was a successful hydrogen-bomb test. If proven, the potential increase in geopolitical tensions could further weigh on high-yielding currencies.

Major Currency Movers:

AUD and NZD – The commodity-related currencies, ones that would most likely suffer in the event of weaknesses in China’s economy, took the brunt of China’s issues mentioned above. AUD/USD fell by 25 pips (-0.39%) while EUR/AUD popped up by 66 pips (+0.44%). Meanwhile, NZD/USD slid down by 40 pips (-0.60%) and GBP/NZD rose by a whopping 127 pips (+0.58%).

JPY – When in doubt, investors stayed out of high-yielding currencies. Forex traders flocked to the low-yielding yen and pushed USD/JPY 24 pips lower (-0.20%), EUR/JPY 22 pips down (-0.17%), and GBP/JPY 41 pips lower (-0.24%).

The move was more pronounced against the comdolls with AUD/JPY falling by 51 pips (-0.60%), NZD/JPY falling by 63 pips (-0.79%), and CAD/JPY declining by 44 pips (-0.52%).

Watch Out For:

  • Italy out on Epiphany Day bank holiday
  • 8:15 am GMT: Spanish services PMI (56.9 expected vs. 56.7 previous)
  • 8:45 am GMT: Italian services PMI (53.8 expected vs. 53.4 previous)
  • 8:50 am GMT: French services PMI (expected to remain at 50.0)
  • 8:55 am GMT: German services PMI (expected to remain at 55.4)
  • 9:00 am GMT: Final services PMI (expected to remain at 53.9)
  • 9:30 am GMT: UK services PMI (expected at 55.6 vs. 55.9 previous). The report tends to dictate the pound’s price action in the next few hours. Watch out for any significant hits or misses!
  • 10:00 am GMT: Euro Zone PPI report (-0.2% expected vs. -0.3% previous)

See more:

U.S. Session Forex Recap

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