Currency summary of the week. Will Asia dominate the markets in the coming days?

Currency summary of the week. Will Asia dominate the markets in the coming days?

A lot has happened in the markets over the past week. From impulsive Black Friday after the holiday in the USA. On the Asian stock exchanges, however, especially at the end of the month, there was a lot of recovery. An exception to other eastern economies is Japan, which the government stubbornly throws at its feet in the form of increased sales tax. Let's take a look at what awaits us in the coming December days.

Yen leaning against the wall

The Japanese economy stands out significantly from other Eastern economies. Its market success may go down in history, and the wealth of inhabitants may result from the inclination to save, which is somewhat related to tradition. Practically since 2012, after the election of new authorities in the country of the Cherry Blossom, an economic breakthrough was expected. It assumed a number of changes related to monetary and fiscal policy. The easiest step in this direction is the Central Bank's loosening of monetary policy through interest rates. As Japanese history shows, even if zero interest rates are maintained, this has a poor effect on the economy and market boom.

The situation of Japan (especially unpleasant compared to other eastern economies) looks bad in terms of debt. Currently, it is almost double the GDP. To a large extent, it is financed from the hands of the residents themselves, while the very tendency to over-commitments is worrying. Hence the introduction of sales tax increases so long for the government. The effects, as you can easily guess, will not be satisfactory and will have the strongest impact on already weak industrial production and sales.

Chart USD / JPY, H4 interval. Source: xNUMX XTB xStation

The appreciation of the dollar against the yen is in full swing, with a slight correction recently. From a typically technical point of view, nothing indicates that something should change in the coming days. Strong signals flowing from medium bands are additionally supported by impulsive exceeding of the last maximum from the November 27 candle. Two small inside bars also highlighted uncertainty about further declines.

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Chile intervenes

Currently the currency summary of the week is quite "Exotic" therefore, we will look at an interesting situation in Chile. We haven't seen a major fight of the local currency - the peso against the dollar - for a long time. Chilean currency is successfully depreciating more and more against the base currency. This situation may be the result of the unstable situation in global markets, where the USD is gaining strength. We have not seen such a low level of CLP in a long time. Therefore, the Central Bank of Chile has tentatively announced measures to support it in the currency market. The plans include selling $ 10 billion. The bank decided to spend the second amount on hedging related to the exchange rate risk, which may significantly increase (and affect the sale rate) with such a large transaction. The market has not seen this type of intervention since 2011. However, it should be borne in mind that the actions of the Central Bank of Chile may only be short-term.

USD / CLP chart, D1 interval. Source: xNUMX XTB xStation

We see the first confirmations of the "initial" depreciation of the dollar on the last two daytime candles. The increases were sucked by a large supply on the market. However, they stopped in the area of ​​strong support, located at the 799,45 level. At this point, I expect rather corrective movement in this area. If Chile decides to finally make such a transaction on the currency market, we should count on declines, at least in the short term.

China against the law

The atmosphere in the ongoing trade conflict has slightly warmed up Donald Trump recently. He did it in a more subtle and less direct way than he usually does, but nevertheless with a similar effect. This time the whole action took place against the backdrop of events in Hong Kong. The President of the United States has signed a law that supports protests there. This action was met with considerable criticism from China. Authorities, due to their jurisdiction in that eastern area, are opposed to US interference in politics. China's first reactions were to focus on actions striking America in retaliation for signing the bill, but to this day we do not know what it would contain. The matter calmed down a bit when information on the willingness of the Chinese authorities to fight the intellectual theft hit the market, which is a big plus in the context of signing the agreement.

US500 chart (CFD on the S&P 500), H1. Source: xNUMX XTB xStation

Markets (mainly equity) have reacted negatively. Not only in Asia, but also in the United States we have seen declines in stock exchanges.

The yuan itself has been scrubbing hard as a base currency against the dollar for some time. It is difficult to say whether this situation will change in the near future. For now, due to beliefs about the stability of the US economy, in market situations of uncertainty (in particular for exotic currencies), the dollar is doing very well. 

The S & P500 index was catching a breath last week as it tested a new resistance. This week there are signs that it will stay above 3150 points for longer.