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Back to Risk-off after a short break

China’s economic data on Wednesday showing better than expected trade figures

CFDs are a leveraged product and can result in losses that exceed deposits. Trading CFDs may not be suitable for everyone, so please ensure you fully understand the risks and take care to manage your exposure.
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Asian markets dropped heavily today, driven by Wall Street biggest slump in three months and continued weakness in oil prices. China’s economic data on Wednesday showing better than expected trade figures improved sentiments and gave risk assets a much-needed boost, but unfortunately, the confidence pill served for half a day only and the red colour returned back to dominate.

Oil bulls were trying to take control over bears on Wednesday, but they all disappeared after US EIA showed inventories of crude at Cushing rose to a record high, while inventories of gasoline increased by another 8.44 million barrels after 10.6 million where added last week and distillates added another 6.14 million. Brent crude dropped to a new 12- year low testing $29.73 and traded at a discount to WTI on prospects of more oil supplies from Iran and weaker demand within emerging economies. Major oil companies either postponed or cancelled future projects worth more than $350 billion and more announcement on CAPEX cutting expected in 2016, this is good news for prices on the longer run. However, with current production levels continuing to serve the oil glut it will take long time for markets to rebalance and according to latest report from EIA, this will not happen before 2017.

Currencies are taking its cue from equity markets, moving in a simple classic risk-off mode with Japanese Yen leading. Machinery orders in Japan fell by unexpected 14.4%, the biggest plunge in more than one and a half year, adding more concerns over global economic growth. USDJPY support seen at 116.68 (Monday’s low) followed by 116.46 (24-Aug low). 

Cable traders are awaiting the outcome of Bank of England’s first meeting in 2016, which is expected to keep interest rates unchanged at 0.5% and asset purchases at £375 billion. Looking into recent economic indicators it doesn’t look very encouraging for the bank, low inflation levels, weak manufacturing, slowing wage growth, and most importantly recent markets turmoil. The drop in oil prices will add additional uncertainties for the bank who is fighting deflation as BoE chief economist, warned in 2015 that the inflation and economy are "skewed materially to the downside." GBPUSD dropped to five years low this week to 1.4350, and if Ian McCafferty choose to change his stance at today’s meeting and vote for keeping rates unchanged, this would add additional pressure on the cable. First support level seen 1.4350 followed by 1.4230 (2010 low)

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CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.