Asian markets start off 2016 in red on concerns over escalating tensions in middle east and as reactions to weak economic data from China. Nikkei opened lower suffered deeper selling as the morning session went on. At the time of writing, Nikkei is down -2.6% or -492 pts. Hong Kong HSI is also losing -2.1% or -460 pts. In the currency markets, Japanese yen is broadly higher today on risk aversion. Aussie and Kiwi are notably lower followed by Canadian dollar and Sterling. Euro is relatively resilient nonetheless. Manufacturing data will be the main focus today. And in particular, UK PMI manufacturing will be closely watched as Sterling has been rather weak during the late holiday period last year. US will also release ISM manufacturing.
The China Caixin PMI manufacturing index dropped to 48.2 versus expectation of 48.9. That's the 10th-straight month of contraction reading. Caixin noted that "this shows that the forces driving an economic recovery have encountered obstacles and the economy is facing a greater risk of weakening." Released last Friday, the official PMI manufacturing rose slightly o 49.7 in December but missed expectation of 49.9, the 5th-month of contraction.
Also weighing down on investor sentiments is that the news that Chinese yuan depreciated to the lowest level in more than 54 months. The central parity rate lost -96 basis points against dollar, hitting the lowest level since May 2011, as the China Foreign Exchange Trading System showed. There are expectations that the Chinese yuan will continue to weaken this year to boost export, which has been slowing down due to global economic conditions and competitions.
AUD/JPY's sharp fall today now put focus back to 86.20 support. The choppy corrective rebound from 81.91 should be completed at 90.71 already. Break of 86.20 will resume the fall from 90.71 and bring a test on 81.94 low in near term.
In the bigger picture, AUD/JPY is in the third leg of the pattern from 2013 high of 105.42. The rejection from 55 weeks EMA suggests that the fall from 102.83 is still in progress. Also, the slightly expanding pattern from 102.83 suggests that there could be downside acceleration ahead. The cross could target 74.55 key support level before trying to form a bottom.
