Market Brief: Hang Seng Index Up on PBOC RRR Cut; AUDUSD, NZDUSD, USDJPY Start 2020 Flat
The Nikkei 225 has been closed for the holidays since December 30. Meanwhile, the Hang Seng Index is starting off 2020 on a bullish note despite protests resuming in Hong Kong. The stock index is currently trading more than 300 points from its open price, it is up roughly 1.14% at 28,510.7.
AUDUSD is down by around 20 pips from its Asian session highs as it trades at 0.6998. On the other hand, NZDUSD and USDJPY are unchanged from their opening prices at 0.6717 and 108.70, respectively.
Caixin Manufacturing Misses Forecasts
During the Asian market session, the Caixin manufacturing PMI was released. It showed that the manufacturing sector in China continued to expand in December printing higher than the 50.0 baseline reading, at 51.5. However, it did miss the market consensus which was for it to print at 51.7.
Meanwhile, in Australia, commodity prices declined in December by 2.1% compared to a year ago. This figure was better than its previous reading which was at -4.7%.
PBoC Cuts Required Reserve Ratio (RRR)
Yesterday, the People’s Bank of China (PBOC) announced a 50 basis point-cut in its RRR. This equates to more cash to go around in the economy by around 800 billion. It is also estimated that funding costs by Chinese banks will go down by 15 billion per year from the move. This is probably the reason behind the bullish start for the year on the Hang Seng Index.
On the 4-hour time frame, we can see that USDJPY bounced off support at 108.46 where it bottomed on the first week of December.Zooming into the hourly chart, we can see what looks like an inverse head and shoulders pattern. Notice how the currency pair initially made lower lows on December 31 which were followed by higher lows. In forex trading, this chart pattern is widely considered as bullish. The recent lows on USDJPY suggests that there could be a shift in momentum from sellers initially pushing prices lower to buyers now pushing for higher lows.
A strong bullish close above neckline resistance at 108.75 could mean that USDJPY may soon rally to 109.12 where it could face resistance at the 100 SMA. On the other hand, a close below the Asian session lows at 108.57 would invalidate this trade idea. It could mean that sellers may push USDJPY back down to support at 108.46.