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Asia risk-aversion deepens - Its China again! ECB Draghi’s testimony eyed

FXStreet (Mumbai) - A renewed bout of risk-aversion gripped the financial markets in the Asian session, bringing along higher volatility, after the Chinese manufacturing PMI hit fresh 6.5 year lows, adding to the persisting China slowdown fears and dampened investors’ sentiment big time.

Key headlines in Asia

China Sept Caixin flash PMI misses expectations, lowest since March 2009

‘Overall the fundamentals are good’ – Caixin’s Chief Economist Dr. He Fan

China is ‘against competitive depreciation, currency war ‘– China’s President Xi

Dominating themes in Asia - centered on JPY, AUD, NZD

Sharper declines in output, new orders, and export orders saw China’s manufacturing index continue to decline this month, reinforcing concerns over the health of the Chinese economy and its impact on the global growth outlook. As a result, a renewed sell-off was witnessed across the Asia, with safe-havens received fresh impetus while the riskier assets were badly hit.

The Japanese yen was the biggest gainer amongst the traditional safe-haven assets, with USD/JPY losing -0.34% to 119.70. Whilst, the EUR/USD pair erased losses and jumped into the bids, now testing highs near 1.1141, up 0.10% on the day. Gold remained less affected by rising risk-aversion, although bounced-off lows and trimmed losses near $ 1124.

As usual the Antipodeans were the biggest sufferers from the China-led risk-off, with the Aussie worst-hit, plummeting nearly 1% to 0.7020 lows. While the Kiwi also came under renewed selling pressure and accelerated losses below 0.63 handle and now loses -0.45% to trade near 0.6260 levels.

On the equities space, Asian markets were deep in the red, completely wiping-out yesterday’s gains. Japan’s Nikkei stays closed for the third day in a row, while Australia’s S & P ASX index drops over-2% to 4,995. The Chinese benchmark index, the Shanghai Composite extended losses, down -2.16% to 3,116. While Hong Kong's Hang Seng index emerged the biggest loser, now declining over -3% to 21,125.

Heading into Europe - centered on EUR, GBP

Markets are eagerly awaiting a raft of manufacturing PMIs from across the Euro area economies to be reported in the European session ahead, as they are likely to set the tone for ECB President Draghi’s testimony scheduled ahead of the US open.

The flash manufacturing PMI for Germany in September is expected to register a lower 52.8 result compared to 53.3 recorded in August, while the index for the services sector is projected to show a small downtick to 54.5 from 54.9 recorded in the previous month.

The forecast for the EU flash manufacturing PMI shows 52.5 for September, almost the same result as the 52.3 recorded a month ago. The EU's services sector is expected to show a small downtick to 54.2 from 54.4 reported the month before.

Looking ahead, the North American session is also expected to emerge eventful as the ECB President Mario Draghi will testify at a quarterly hearing before the Committee on Economic and Monetary Affairs of the European Parliament. He is likely to start pondering the bank's next moves following the Fed decision as he speaks to lawmakers in the European parliament on Wednesday.

Besides, BOE’s Broadbent’s and FOMC member Lockhart’s speeches at separate events, will also garner some attention amid a data-thin US calendar. On data space, only the US flash manufacturing PMI is due to be published later today.

EUR/USD Technicals

Valeria Bednarik, Chief Analyst at FXStreet explained, “The technical picture favors additional short term declines, as the 1 hour chart shows that the 100 SMA is crossing below the 200 SMA, well above the current level, whilst the 20 SMA contains the upside around 1.1160 now. In the same chart, the technical indicators are consolidating in extreme oversold readings, with no signs of changing bias any time soon.”

“In the 4 hours chart, the Momentum indicator has partially lost its bearish tone, but the RSI indicator maintains its downward slope around 28, supporting additional declines for the upcoming sessions, particularly if risk aversion continues dominating the financial world.”

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