China sparks fresh risk aversion

The Asian session has been relatively quiet due to the national holidays in New Zealand and the forthcoming Martin Luther King Day in the US.

The demise of the Shanghai composite had led to a slightly weaker tone for the dollar as cross JPY pairs come under renewed pressure, following reports that a number of Chinese brokerage houses were suspended from opening new accounts for three months. This was due to violations of financing repayments, as the CNH falls some 200 points against the dollar.

The head of the Swiss finance department has announced plans to launch measures to help Swiss companies left exposed by the CHF surge, as many market commentators suggest that the SNB have been surprised by the magnitude of the CHF appreciation.

As options grow increasingly limited in the SNB’s fight to contain the threat of deflation, president Jordan has warned of “opportunistic interventions” to stabilise the CHF market, adding that the cap was no longer justified with the improving Swiss economy.

The ECB meeting on Thursday is the highlight of the week, with market consensus expecting that the ECB will announce quantitative easing. German media reports suggest that Mario Draghi presented the ECB QE plans to German Chancellor Angela Merkel and Finance Minister  Wolfgang Schäuble last week, in an attempt to gain cooperation between fiscal and monetary authorities.

The program is likely to be set to at least €500bn of sovereign bond purchases in 2015, in proportion to each country’s paid capital at the ECB. Anything less than this, and the market will be disappointed – although numbers closer to €800bn have been suggested last week by ECB sources.

Together with other measures, including the ABS and TLTROs programs, this should see the ECB’s euro balance sheet hit the three trillion mark. The ECB is also likely to hold back on some details ahead of the Greek election this coming Sunday, such as the sharing of credit risk for sub-investment grade bonds.

EUR/USD

Supports  1.1500-1.1450-1.1550  | Resistance  1.1850-1.1910-1.1980

USD/JPY

Supports  116.80-116.30-115.85  | Resistance  118.20-119.30-120.80

GBP/USD

Supports  1.5120-1.5075-1.5000 | Resistance  1.5160-1.5235-1.5310