Key overnight events:
- Asian stocks this morning are broadly lower, fueled mainly by worse-than-expected China manufacturing PMI data over the weekend and earlier today – Manufacturing PMI came in at 49.7 vs expectations of 49.8 while a more positive non-manufacturing PMI rose to 54.4 from 53.6 in Nov; the Caixin manufacturing PMI slumped to 48.2 (from 48.6) vs the expected reading of 49.0.
- In addition, tensions in the Middle East heightened considerably after Saudi Arabia cut diplomatic ties with Iran, after the Saudi Arabia embassy in Tehran was attacked, in retaliation of Saudi’s recent execution of a prominent Shiite cleric.
- As a result, crude oil traded at a 2 week high of $38.32/bbl earlier today.
- Spot 1.3890
- Currently in a sideways range of 1.4000-1.3802 for the past 2 weeks, and trading near 11-year highs.
- 1.4000 remains both a key technical and psychological resistance. Further support from oil prices could see more USDCAD consolidation in the near term, or even a slight possibility of a minor correction to 1.3672 should the 1.3802 floor be broken.
- However, the major uptrend remains intact for now.
- Spot 6.6138
- USDCNH this morning weakened the most since Aug 2015 in reaction to poor manufacturing data, thus spurring speculation that the PBOC will allow the Yuan to weaken further to bolster its economy
- PBOC cut its reference rate for USDCNY to 6.5032, its weakest since May 2011.
- USDCNH breached 2015’s high of 6.6105 earlier today, and the next resistance level of 6.6655 remains in sight.
- Spot 8.8338
- USDNOK uptrend remains intact as well, after making fresh 13-year high of 8.8769 over the long weekend.
- Should oil prices continue to be supportive, however, some consolidation around the 8.8000 handle could occur. In addition, retail sales last week was better than expected.