IG Markets - Afternoon thoughts

Across Asia, regional markets are mostly lower, choosing to ignore positive leads from Wall Street and focus on the latest tightening measures in China and the Bank of Korea’s decision to keep interest on hold versus forecasts of a rise. The Nikkei 225 is the worst performer, down 1.2% while the Kospi and Hang Seng are 0.1% and 0.4% weaker respectively. The Shanghai Composite is beating to the tune of its own drum, currently up 0.1%.

In Australia, the ASX 200 is currently 01% weaker at 4686 having earlier traded to a session low of 4675. Despite modestly higher US markets, the local market is once again being dragged lower by material and energy names with the financial, consumer and information technology sectors also in negative territory. On the flipside, modest gains are being seen across the industrials, utilities and telecom sectors.

The market is positioned pretty defensively heading into the weekend. There’s not a lot of volume going through ahead of the weekend. Participants are facing plenty of headwinds, with few traders willing to hold positions over the weekend and expose themselves to further risk.

Everything is revolving around risk appetite at the moment, which is extremely fickle. Last night was a classic example. Commodities were down sharply on the back of a firmer US dollar before reversing strongly. Now we have a situation where the US dollar looks likely to see short-term selling pressure. The US dollar index looks very well offered around the 75.25 – 75.50 horizontal resistance levels; the 50 day MA is also meeting here.

Interestingly, the AUDUSD, silver, gold and oil charts are all almost identical. Last night’s price action showed significant rejection from the lows off of strong support, pointing towards short-term upside; this all fits in with the short-term bearish US dollar view.

In forex markets, the main driver in Asian trade has been the surprise decision by the Bank of Korea to leave interest rates on hold at 3% despite mounting inflationary pressures. This took the market by surprise and sent risk currencies south as traders worried about the reasoning behind the BOK’s decision. The EURUSD fell to lows of 1.4122 after opening the Asian session at 1.4240; it’s recovered to last be at 1.42.

The AUDUSD has tracked the euro pretty closely, although it hasn’t recovered as much from the low. It’s currently at 1.0625 after opening at 1.0675. All eyes now look towards European GDP which is released at 19:00 tonight; the market is expecting 0.6% growth on the quarter and 2.2% on an annualised basis, so a better-than-expected number could see further buying in risk currencies.

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