Repeat after me: China will lead the world out of recession, China will lead the world out of recession….
As longtime readers know, I’ve been quite skeptical of the notion that “it’s different this time” and that emerging markets will lead developing markets out of recession. That view began to crack last week and it shattered further this morning as hot money rushed out of Chinese shares. Stocks plunged 5.8% and have dragged the developed markets down with them. Looks like the markets have finally awakened to the notion that final demand remains week in the States and elsewhere.
EUR/USD has slumped back to 1.4050 as position adjustment continues. AUD, which made a trend high on Friday within roughly 20 pips of 0.85 is now on the 0.81-handle with traders praying for rebounds so they can trim positions further.
US equities are down 2.25% in futures trade and will be closely eyed all day long.
Expect protection of 1.4000 barriers to be quite intense but stops will be equally intense if that level is overcome. 1.4070/80 is resistance on rebounds intraday.