Markets receive punishment following resumption of China concerns

Any expectations for global markets to enter the new trading year calmly were completely ruined following further weak China data resulting in anxiety among investors and triggering an aggressive sell – off across global equities. Markets received a heavy lashing following the weak China Caixin December manufacturing PMI number, which continued the ongoing streak around slowing data from China and renewed concerns around the slowing pace of growth in this major economy.

The losses in the China markets were so extreme that trading was suspended for the rest of the session, which alarmed participants and set a theme of panic as traders returned to the office following their break. The alarm bells were ringing loud at traders with both European and American equities entering a free – fall and resulting in one of the worst trading days seen in years.

Overall it is pretty clear that market participants are jittery and scattering away from riskier assets, meaning there is potential for global equities to continue these steep losses throughout the week.

One thing that is looking certain at present is that China data are continuing to point towards the economy slowing down even further in 2016, meaning that the local markets are still vulnerable to further declines. Sentiment towards the Chinese economy remains heavily bearish and concerns could elevate ahead of the China CPI report on Saturday.

WTI Oil remains depressed

WTI Oil has reversed gains and is looking to resume its depressed state despite the growing tensions between Saudi Arabia and Iran. Yesterday I expressed the opinion that the gains in oil at the beginning of the week were spurred by hypothetical optimism that escalating tensions between Saudi and Iran could impact production and remove some of the extreme oversupply in the markets. This has always been hypothetical optimism and there is no current indication that production levels of oil may change, meaning that the heavy aggressive oversupply combined with fears over the global economy is going to leave the commodity depressed. WTI concluded Monday’s trading session below $37 as concerns around the persistent oversupply and fears over the global economy returned to weigh on investor sentiment.

WTI oil is fundamentally bearish and investors’ attraction has been haunted by the intensifying concerns around the unrelenting oversupply, while growing anxieties about the pace of global growth have triggered fears that demand may be about to dip lower. In reality, oil concluded 2015 over 35% lower and with Iran also expected to unleash its own production in 2016, this commodity may continue to face further milestone lows and more signs over weakness in the global economy could be a signal to invite bearish investors to send prices towards the December 2008 crisis lows of $32.40.

GBPUSD sinks below 1.47

The bearish sentiment towards the Sterling/Dollar declined to new depths on Monday with prices falling to a fresh eight-month low at 1.466. Losses in the GBPUSD accelerated after a slowing UK manufacturing PMI at 51.9 renewed concerns that even the UK economy is entering a period of weaker growth.

Sentiment towards the Sterling remains heavily pressured and recent reports around analysts suggesting that the UK pound may be the most overvalued currency in the world are probably leading investors’ attraction to fade even further. For the most part of 2015, the pound received punishment from the Bank of England’s resistance to raise UK interest rates, while the static inflation growth and growing expectations that the UK economic growth is slowing down have provided bearish investors with opportunities to attack the Sterling further.

Later today investors will be waiting for the latest construction PMI for the UK economy and if it follows the same declining pattern as Monday’s manufacturing PMI, then the GBPUSD may be left vulnerable and open to further losses.

Fundamentally the GBPUSD is bearish and the BoE’s hesitance to commit to raising UK rates may offer a short-term interest rate differential between the Bank of England and the Federal Reserve, ultimately providing an opportunity for sellers to send prices much lower.

From a technical standpoint, the candlesticks are trading below both the daily 20 and 200 SMA, while the MACD also trades to the downside. Previous support around 1.4850 may become a dynamic resistance which should encourage sellers to send prices towards the lows of April 2015 at 1.4565.

USDCHF

The USDCHF trades in a very wide range on the daily timeframe and is currently flat. A heavy layer of resistance may be found around 1.008 while support can be found just above 0.9800. A breakout above 1.008 may encourage buyers to send prices towards 1.020.

AUDUSD

This pair currently trades in a choppy fashion meandering within the upwards trend channel. Prices are currently below the daily 20 SMA while the MACD trades to the upside. A decisive break below 0.7150 may encourage sellers to send prices to the next relevant support at 0.7050.

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