The Chinese economy began its decline

The new year in the Forex market began with the increasing pressure of the US dollar against major currencies with the exception of "defensive", which includes the Japanese yen and the Swiss franc. You should also pay attention to the dynamics of government bonds of US Treasury, the demand for which has resumed.

In our opinion, the main reason for such behavior in the market is the preservation of the general pessimism of market participants regarding the growth prospects of the global economy, which only intensified on the first working day after the publication of data from the manufacturing business index (PMI) from China's Caixin. It was assumed that the indicator, albeit slightly, would grow, remaining above the level of 50 points, which separates the overall dynamics of the indicator's growth from its fall. But that did not happen. The business activity index in the manufacturing sector fell to 49.7 points in December against the November value of 50.2 points and the forecast of increase to 50.3 points.

Despite the fact that today Europe continues to celebrate the New Year holidays, local financial markets are working and they show a strong drop in stock indices. Futures on US stock indexes are also in deep minus, anticipating a fall at the opening of the US stock market. In the foreign exchange market, the Japanese yen is primarily in demand. Interest in the Swiss franc is present, but not so strong. The United States dollar is in demand as a safe haven currency.

The fall in the overall demand for risky assets and in the dollar appreciation that is based is explained by data from China, which show not only a slowdown in growth, as it was before, but the beginning of its decline. This is the strongest signal for the markets, which indicates that the second largest economy in the world does not just slow down growth, but begins its decline. On this wave, we should also expect a noticeable decrease in demand for raw materials and commodity assets, which will hurt oil prices and metals that have a technical demand for production.

On this wave, a decline in commodity and commodity currencies against the US dollar has already been noted today. Undoubtedly, we should expect with the start of trading in Russia and the depreciation of the ruble.

In our opinion, we should expect the continuation of the local strengthening of the dollar with the start of trading in the States.

Forecast of the day:

The AUD / USD currency pair is above the level of 0.7000. Breaking this mark in the wake of negative data from China could lead to a fall in price to 0.6915.

The USD / JPY currency pair is trading below our previous target level of 109.60. We expect the pair to decline to 108.15.