Originally published by AxiTrader
The US dollar's mild reversal and a more positive tone across global stock markets in recent days has continued to relieve the pressure on AsiaFX for the moment.
That's likely to prove transitory in time, perhaps even as we edge closer to the FOMC meeting next week. But for now as the Euro pushes a little higher dollar Asia continues to drfit a little lower.
Over the past day or so there has been some very interesting data across the region.
Malaysian trade was interesting with both imports (-6.6% yoy) and exports (-8.6% yoy) a lot lower than expected. The fall in exports was the fastest pace of contraction since April 2015 but the government said this was as a result of the "high base effect" of the October 2015 data.
Interestingly while year on year exports to the US (-3.5%) and Europe (-12%) are falling Chinese exports grew 3.4%.
Speaking of China the much anticipated foreign exchange reserve data was released last night and showed that reserves fell $69.1 billion during November as outflows accelerated and the PBOC sought to slow the pace of the yuan's fall.
The new level of reserves at $3.051 trillion was 2.2% lower than the previous month - the biggest fall since January's 3% fall disturbed markets. It also took the level of reserves to their lowest level since 2011 and down almost 25% from the peak.
The lower than expected outcome naturally has some element of US dollar revaluation in it. But overall both the fall in reserves and actions taken by SAFE and the PBOC to effectively regulate Chinese national capital flow out of the country suggests capital flow remains an issue for the Chinese authorities.
Today see the release of Chinese trade data with the market expecting a fall of 5% for exports during October (yoy) and a 1.3% fall in imports (yoy). Last night Premier Li said that China was achieving its goals for growth this year and was setting up for a strong performance in 2017 economically - or words to that effect.
I agree. What China has achieved this year relative to what markets, and traders, feared in the early part of 2016 has been a very solid performance.
Today's trade data will be watched keenly by traders to see if the data backs Li's rhetoric.
Elsewhere the RBI left rates on hold yesterday surprising many given that PM Modi's cash crunch has the potential to derail the economy. The RBA left rates at 6.25% and Tsaid it wants to wait and see how things play out. If it was me running the RBA I'd also be circumspect about cutting rates in an environment where rates are a key driver of currencies broadly and the US dollars surge across emerging markets in particular.
Which brings me back to where I started today. The US dollar is a little weaker and AsiaFX is a little stronger as a result. The KRW in particular is down at 1159 testing the bottom of the uptrend line I highlighted in yesterday's AsiaFX piece. I always respect levels and trendlines - unless or until they break. But if the KRW breaks lower it could be a sign Dollar Asia is in for a deeper pullback.
In many ways the Euro and the ECB tonight could decide the fate of the region's currencies over the rest of the week.
Here's the region's currency levels at 9.00am Beijing/Singapore time.
And, Asian Market Chart of the Day - USDCNH, support held. What's next.
Given the obvious level of capital leaking from the Chinese financial system it is almost impossible to be bullish the Yuan against the US dollar at the moment. Certainly on a medium term basis - into mid-2017 - that is even more difficult.
So it's no surprise that traders respected support at the recent test of the trendline. But as I have shown in previous daily notes the USD/CNH, USD/CNY, and indeed USDAsia moves are really, and have been for 6 months, about the US dollar side of these crosses.
So for the moment the key levels to watch on the USD/CNH are the trendline at 6.856, and a tiny bit of topside resistance short term at 6.906. A break either side could see price moves accelerate.
Have a great day's trading