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Chinese central bank governor Zhou Xiaochuan remarked in an interview on Sunday that, there is no basis for the current depreciation of the Yuan as the balance of payments is normal, capital outflow are normal and Yuan is stable against a basket of currencies. He dismissed the possibility of tightening capital controls as there is no need to worry about a short-term decline in foreign-exchange reserves because China has ample holdings for payments and to maintain the stability of its currency and capital markets.
The shrinking of foreign exchange reserves began since the central bank cut its daily reference rate by 1.9 percent in August, 2015. Last Month the foreign currency reserves in China fell to their lowest level since 2012 as it fell to $3.23 trillion declining by 99.5 billion in January.
US stocks soared significantly late in the session on Friday, with European stocks boosted by good US economic data and a sharp rebound in Oil prices. The Dow Jones Industrial Average climbed 313 points and ended at 15973.83. S&P climbed 1.5%, ended week at 1864.78 and NASDAQ rose 1.66 percent, closed at 4337.51. JPMorgan's stock rose 8.3 percent on Friday as CEO Jamie Dimon bought over $25 million worth of the company's stock. Oil soared about 11 percent on Friday which might bolster the Stock market.
In other significant news that may create some geopolitical plays in the coming week, Saudi Arabia has announced that its moving troops to Turkey, in preparation for an “invasion” into Syria. This development may assume increasing significance in the coming days and weeks as the Saudi involvement would complicate the ongoing situation in Syria/Iraq, with multiple countries involved in different ways and on different sides, along with multiple militia and terrorist groups. With the potential to embroil the whole region in a volatile conflict, this development has the potential to have wide ranging effects on all kinds of financial markets – including the equity, debt and commodity markets.
EURUSD slid 0.60 percent on Friday but ended this week with a 0.90 percent gain. Next week is going to be interesting for EURUSD as some important events will be held over the upcoming week. On Monday, Mario Draghi will testify on ECB’s monetary policy at the European Parliament's Economic and Monetary Affairs Committee, in Brussels. Monthly ZEW economic sentiment index in Germany for January will be published on Tuesday which could provide some clues on the strength of the economic outlook for Germany. Minutes of FOMC's December meeting will be released on Thursday.
Fig: EURUSD Daily Technical Chart
EURUSD dropped slightly on Friday after being rejected from the top of upward sloping channel on the daily chart. Price remains above SMA50 and SMA200. EURUSD created interim support at 1.1213 while the major support is at the 1.1060 level. EURUSD has been in a strong rally since December, 2015. Bullish outlook will prevail until price breaks down below 1.1060. However, there are a bunch of resistances in the 1.1440-1.1490 zone. A strong breakout of that resistance zone could extend the current bullish rally to 1.1700. Conversely if it fails to breakout from the current upward sloping channel price might retest the 1.1060 level, breakdown of which would spur the bearish momentum.
Buy EURUSD Digital Call Options on a break of 1.1500. Buy Digital Put Options on a break below 1.1650.
GBPUSD soared 0.21 percent on Friday in a ranging market. It was wavering in a range of 1.4350-1.4580 all through the previous week.
Fig: GBPUSD Daily Technical Chart
On the Daily Chart, GBPUSD formed interim support at 1.4350. It is currently hitting up against the top of downward sloping diagonal resistance. A strong breakout of the 1.4580 resistance level, and a corrective retest of it as a support, might spur the current rally towards 1.4800 , against the strongly bearish trend prevailing currently. Conversely a breakdown of 1.4350 level might lead it towards the resumption of previous downtrend.
Buy GBPUSD Digital Call Options on a break above 1.4610. Buy GBPUSD Digital Put Options on a break below 1.4540, or on a test of 1.4750.
USDJPY rebounded 0.70 percent on Friday, after falling for four straight trading days last week. It plummeted 3.14 percent last week despite Friday’s gain.
Fig: USDJPY Daily Technical Chart
On the Daily chart, USDJPY initiated a sharp free fall after being rejected by the moving averages at the 121.68 level. It has dropped 6.50 percent already in February, as the current risk off situation empowered the safe haven Yen while weakened the dizzy US Dollar. The immediate resistance is at the 114.20 level which is expected to be retested next week. The next significant support of USDJPY is at 110.00, breakdown of which would pave the way towards 105.00. However, a strong rebound might lead it to retest the broken, but significant support level, at 115.90.
Buy USDJPY Digital Put Options on a break below 109.90. Buy Digital Call Options on a break above the 114.20 level, or on a test of 107.50.
XAUUSD slipped 0.75 percent on Friday after hitting a fresh twelve month high at 1263.37 on Thursday. It climbed 5.33 percent last week which is the highest weekly gain since the week ended 11th July,2013.Gold has been supported in this current upmove by various factors and gold and silver have both bucked the generally negative trend in commodities. From safe haven flows to momentum buying based on the breaking of many resistances in the last few trading sessions, Gold has been a standout commodity that has been one of the biggest beneficiaries of the current volatility and chaos in global markets.
Fig: Gold Daily Technical Chart
Gold has been in a strong rally December,2015. In the past two weeks, the volatility went wild amid a frenzy to buy Gold as safe heaven asset. It has climbed 10.74 percent so far in February and 16.5 percent this year. Currently it has formed interim support at 1232.00 after slipping from 1263.37. The next significant support is at 1205.00. The next strong resistance is at 1303.00. It is expected that buyers may try to continue pushing it higher towards 1303.00 in the coming days.
Buy Digital Call Options in Gold on a break above 1245.00. Buy Digital Put Options on a break below 1230 or on a test of the 1280.00 level.