China unexpectedly increased the requirement of reserves for banks today by 50 basis points. This move is intended to cut back on bank lending due to worries of inflation.
China’s growth was helping the global economic recovery, so there are fears this move may put an end to or diminish the recovery. US stock markets opened significantly down and the JPY gained significantly from the news. AUD also lost strength, as Australia is a strong trading partner with China.
Technically speaking, US stocks are overbought and the USD and JPY currencies are oversold, and will need a significant correction. The market will continue to look for something to spark this. If the effects today can hold, look for this correction to sustain through the week.
