Yen and Franc Soar as Emerging Markets Hit by Risk Aversion

yenThe Japanese yen and Swiss franc surge broadly today as markets are hit by deep risk aversion in emerging markets. The Turkish lira dives to new record low as the central bank’s USD 2b effort to curb the decline failed. Argentine peso suffered the steepest fall since 2002 crisis a triggered officials to ease currency controls. Ukraine’s hryvnia tumbled to a 4-year low and South Africa’s rand drops to the lowest level since 2008. Some economists attributed the selloffs to uncertainties over Fed’s policy path amid tapering, as well as worries on slowdown, in particular in China. That came a day after IMF said that the growth advantages of emerging markets over advanced economics would shrink to the lowest since 2001. Also, there were concerns that China is struggling to contain the USD 4.8T shadow-banking debt.

Major European indices are trading in red with FTSE losing around -1% while DAX loses -1.3% and CAC losing over -1.4%. US futures also point to sharply lower open and we’d possibly also see extended rally in US treasuries, and decline in yields. In the major currency markets, USD/JPY powered through recent support of 102.85 and breached 102 handle. The move carries some larger bearish implications and raises the chance that 105.41 was already the medium term top. Among European majors, Sterling is clearly the weakest one as EUR/GBP rebounded strongly today. Swiss franc is the strongest European on risk aversion.

Elsewhere, Canada CPI accelerated to 1.2% yoy in December but missed expectation of 1.4% yoy. Core CPI rose to 1.3% yoy, inline with consensus. UK BBA mortgage approvals rose to 46.5k in December but missed expectation of 47.2k.

USD/JPY’s decline accelerates today and took out 102.85 as well as 102.49 support successively. The development firstly indicates that fall from 105.41 has resumed. More importantly, we’d again like to point out the bearish divergence condition in daily MACD. More importantly, current development raises the chance of larger trend reversal. Intraday bias remains on the downside for 100.61 resistance turned support next. On the upside, above 103.58 minor resistance will turn bias neutral and bring recovery first.

In the bigger picture, medium term up trend from 75.56 is in form of a five way impulsive move with rise from 96.56 as the fifth leg. Current development is starting to argue that such up trend has topped out at 105.41 already. Break of 96.56 will confirm and the pair should then turn into medium term correction before staging another rise. But before that, break of 105.41 will extend the uptrend to 50% retracement of 147.68 to 75.56 at 111.62 next.