Market Update: Chinese Reserves, Dollar & Euro Movements

During January, China’s foreign-exchange reserves nosedived by almost $100bn, the lowest level since May 2012, according to new data released on 7th February.
The slump, which was actually somewhat more modest than expected, represents shrinkage of 19 per cent from the June 2014 high point. Chinese authorities are clearly attempting to prevent a disorderly decline.
For Forex traders honing their Forex trading strategies in the midst of all this turbulence, analyst Rajiv Biswas of IHS Global Insight believes that the People’s Bank of China’s (PBOC’s) efforts to stabilise the currency appear desperate, leading global currency traders (and investors and hedge funds) to continue with their one-way bet against the yuan. As cited in The Financial Times, he writes “The PBOC is caught between the devil and the deep blue sea, facing a choice of either continued slow erosion of FX reserves, or a rapid currency adjustment that could be destabilizing for China and plunge global currency markets into turmoil.
“Further sharp yuan devaluation remains one of the key downside risks to the global economic outlook in 2016, due to the shock waves it will cause in global currency markets.”
Meanwhile, US payroll data released on Friday 5th February was frankly confusing. Estimates of a 190,000-job gain proved wrong, with only 151,000 positions added, while expectations of a 292,000-job increase for December were revised down by 30,000 jobs. Despite this, the US dollar rallied in response to the secondary data for January, which revealed a fall in unemployment of 4.9 per cent (the first drop since February 2008) and a rise in wages of 2.7 per cent.
Trading on European equity markets got off to a positive start on Monday 8th February, with the FTSE up 0.3 per cent, DAX up 0.5 per cent, CAC40 up 0.4 per cent, FTMIB up 1,2 per cent and IBEX up 0.3 per cent. The Euro remained unfazed.