Yen pares back some gain in Asian session as global stock markets stabilized. DJIA closed down -276.09 pts, or -1.58% after losing as much as -467 pts overnight. The selloff in global markets were led by the -7% fall in China yesterday as the "circuit breaker" measure started to take effect. Asian markets are hovering in tight range today with China SSE (L:SSE) composite, Nikkei and HK HSI flipping between gain and loss. At this point, dollar, yen and swiss franc are the biggest winner this week while commodity currencies are weakest. The greenback gave little reaction to the disappointing ISM manufacturing index. Euro was originally relatively resilient but was weighed down by weak German inflation data. Overall, the markets are still vulnerable to further volatility in this first trading week of 2016.
The chart of China's Shanghai A share index is looking rather bearish. The rebound from 2986.39 should have finished at 3856.74, ahead of 38.2% retracement of 5423.24 to 2986.39 at 3917.2667. This is supported by the break of the near term channel and the lost of support from 55 days EMA. We'd probably see deeper fall back to 2986.39 low ahead in Q1.
On the other hand, the development in DJIA is still bullish. In spite of the steep intraday fall overall, DJIA managed to hold on to 38.2% retracement of 15370.33 to 17977.84 at 16891.77. Price actions from 17977.84 are still viewed as a consolidation pattern. And rebound from 15370.33 is expected to resume sooner or later to test 18351.36 high, likely with a break. Nonetheless, global developments could drag down the index and sustained break of 16981.77 fibonacci level could send the index to 61.8% retracement at 16366.39 and below.
In US, Cleveland Fed president Loretta Mester shrugged of the stock market rout and said that "there's going to be volatility in the markets, that's kind of the nature of financial markets." She remained confident that "underlying fundamentals of the U.S. economy remain very sound." San Francisco Fed president John Williams said he expected three to five rate hike this year as the US economy is "in very good shape". Meanwhile, markets' attention will be on the non-farm payroll report to be released on Friday. The employment component of ISM manufacturing released yesterday showed deterioration back to contraction again, down from 51.3 to 48.1. in December. That raised some concerns of downside surprise in NFP.
As for today, Japan monetary base rose 29.5% yoy in December. German unemployment, UK construction PMI and Eurozone CPI will be released in European session. Canada IPPI and RMPI are the only releases in US session.