The global market rout took a breather earlier last week but came back quickly towards the end. DJIA lost 358.37 pts, or 2.2% over the week to close at 15988.08, below 16000 handle. S&P 500 lost 38.13 pts, or 2.0% to close at 1880.3, the lowest close since last May. Selloff in Chinese stocks and worries over the country's economy was a main driver in risk aversion. The Shanghai A share index closed at 3036.04, just breaking last year's lowest weekly close of 3066.64, and barely held on to 3000 handle. Selloff in crude oil was another risk averse factor as WTI lost 30 handle and closed at 29.70. In the currency markets, Yen was again the biggest winner while commodity currencies and sterling were weakest. In particular, Canadian dollar suffered most as talks surfaced that weak oil price could force BoC to cut rates again this week. Dollar was the second strongest major currency even though it's bounded in range against euro and Swiss Franc.
Risk aversion would probably continue this week but a major factor is on the development in the Chinese stock markets. The Shanghai A share index is now so close to last year's low at 2986.39 and a near term rebound could be due. In that case, we might see an attempt to come back to 3500 handle. And that might trigger a recovery in global stocks. However, firm break of 2986.39 will likely trigger accelerated selling to 61.8% projection of 5423.24 to 2986.39 from 3856.74 at 2350.76. And the reactions in global markets could be huge. The developments this week could be quite unpredictable.
S&P 500 is also facing key medium term support level of 1867.01. The correction from 2134.71 is overall expected to extend to 38.2% retracement of 1074.77 to 2134.71 at 1729.81. But we might see a near term recovery this week first. Meanwhile, any downside acceleration would easily push the index through 50% retracement at 1604.74.
Outlook in the dollar index is unchanged. Recovery from 97.19 is corrective looking and argues that fall from 100.51 is going to resume sooner or later. Such decline will be viewed as the third leg of the consolidation pattern from 100.39. Break of 97.79 support will bring a test on 97.19 first. Break there will confirm this near term bullish case and would possibly target 92.62. Hence, even though the greenback might be strong against commodity currencies, we'd stay skeptical on its strength against euro and yen ahead.
Commodity yen crosses present very good sell short opportunities. But again, as risk markets might, or might not, have a near term rebound before heading south again, we'll prefer not to chase decline for the moment. AUD/JPY did recover to 83.39 last week but missed our short entry of 84.00 and then down trend resumed. The fall from 102.83 is viewed as the third leg of the pattern from 105.42 and would target 74.55 support, which is close to 61.8% retracement of 55.06 (2008 low) to 105.42 (2013 high) at 74.29 before trying to form a bottom.
CAD/JPY's decline accelerated even faster and was just held slightly above 100% projection of 101.13 to 87.35 from 93.23 at 79.45. Break there will pave the way to 72.13 key support level next.
