Summary:

• Major currency pairs remain steady as the new trading week gets underway
• Australian services PMIs turn out to be mixed just ahead of the RBA meeting
• Equity markets in Japan and Australia plunge due to the sell-off on Wall Street and the global bond market rout

Beginning with the currency market one may conclude that moves have been pretty tiny thus far. The US dollar is trading flat despite the excellent labour market report on Friday, it’s worth noticing here that the greenback was able to retain just a part of the post-NFP gains. In terms of the macroeconomic data we got two prints of services PMIs (both for January) from Australia which were equivocal sending a mixed message to the Reserve Bank of Australia holding its meeting tomorrow. First of all, CBA/Markit PMI slid from 55.1 to 53.8 while AIG PMI improved from 52 to 54.9. The details show that employment climbed its highest result since December 2004 suggesting the domestic labour market is getting tighter, on the other hand the RBA still laments there is still some slack as wage growth remains subdued.

The Australian dollar is trading flat in early European hours but a technical analysis may suggest a possible rebound from a demand zone located at 0.7880. However, if USD bulls make a comeback (at least in the short-term), the pair could be able to break below the mentioned support. Source: xStation5

While the FX market has been benign, stocks have been much more volatile. First and foremost, let us recall that the US indices tumbled on Friday (SP500 slid 2.1%, Dow Jones lost 2.5% and NASDAQ went down almost 2%) which had their reverberations across Asian equities. Taking a look at Asian markets one may spot that the Japanese NIKKEI (JAP225 on xStation5) was hit the most falling over 2.5%. On top of that, the Australian S&P/ASX 200 (AUS200) dropped 1.55% as traders prepare for the RBA meeting tomorrow (notice that there are some calls the RBA could change its bias to some extent suggesting that the beginning of monetary tightening might take place as soon as later this year). Moreover, one cannot miss out another reason why stocks were sold-off and it’s the global bond market carnage. For instance, the Australian 10Y yield surged over 10 basis points during today’s session taking its cue from the US counterpart which closed almost at 2.88% on Friday. The plunge in the bond market has come as investors seem to call into question whether the Federal Reserve will stick just to a gradual pace of monetary tightening instead of pulling the trigger more than three times this year. On the flip side, the Chinese Shanghai Composite (CHNComp) is gaining 0.4% at the time of writing after retracing the gap it made at the opening.

The SP500 (US500) extended its decline on Friday breaking below an important trend line. As a result, bears appear to be pushed to the wall and they could have some obstacles to regain its impressive momentum they had prior to the decrease. Source: xStation5

Finally let’s add that oil prices are trading ca. 0.9% lower on the day as the Friday’s data showed another healthy increase of oil rigs in the US. Consequently, there are getting higher hopes that US output will be rising even at the higher pace. In effect, the Norwegian krone is dropping around 0.2% being the worst performing currency the G10 basket.