Jan 8th, 2016: Markets Stable After Heavy Losses

• World equity markets sustained heavy losses yesterday, with the benchmark S&P 500 dropping 2.37% overnight. Chinese markets have stabilised this morning, posting sizeable gains and providing some reassurance to global investors. Fears over Chinese growth and a general devaluation in emerging market currencies are thought to be behind the week’s moves. The dollar index is nudging higher mainly due to euro weakness, while the USD/JPY is posting its first gain in many sessions.

• Meanwhile, the Australasian currencies so close to the epicentre this week’s problems are posting the biggest gains. The AUD/JPY in particular is making up for lost time.

• The euro has been a bastion of stability these last two days, but is sagging this morning, particularly against the British pound.

Coming up today: 

• Coming up today, we have UK trade balance data at 09.30.
• This is followed by Canadian and US employment data. As ever, US Non Farm Payrolls is the main focus, with a gain of +203k expected. The unemployment rate is expected to remain at 5%.

Trade Idea: 

• Did we reach a capitulation low point for the AUD/JPY yesterday? Although uncertain as ever, it is worth noting how reactions to Chinese stability (however short lived) can be as exaggerated to the turmoil that precedes it. So while it may be too early to say the worst is over in the long term, in the short term, we might see a bounce.

• A good way to play this is a HIGHER trade predicting that the AUD/JPY will close above 0.8400 in 5 days for a potential return of 117%. 

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