The foreign exchange market is unusually calm. The US dollar is little changed against currencies. While the selling pressure that took sterling below $1.39 and the euro below $1.10 has subsided, neither has been able sustain upticks. The euro rose to $1.1040 before sellers re-emerged. Sterling was capped near $1.3965. 

The dollar had slipped to almost JPY111.00 yesterday, coming within five ticks of the February 11 low, before rebounding with the recovery in US stocks and advance in US yields. The greenback’s gain faltered near JPY112.65. 

There does not appear to be any catalyst for the reversal in the US afternoon yesterday. The S&P 500 closed a couple of the gaps that had been created in recent days, and reversal higher negated some of the technical weakness. There is a gap still unfilled.It was from the higher opening on February 16. That gap is found roughly between 1864.80 and 1871.45. Although US shares are trading lower in Europe, the focus returns to the key 1945 area. A close above there would lift the tone further.  

US shares helped lift most Asian bourses. Japan’s equities were up the most, with the Nikkei gaining 1.4%. Of note, Chinese shares fell and fell hard, with the Shanghai Composite off 6.4% and the Shenzhen Composite down 7.3%. However, the contagion was minor. That alone is noteworthy. Reports blamed tighter liquidity conditions and the “normalization” of reserve requirements, removing the preferential treatment some banks enjoyed for the largest drop in more than a month.   

For its part, the yuan (on and offshore) has weakened a little but is broadly stable compared with earlier this year, and the spread between the two remains tight. After a rough start, the PBOC has stabilized its FX regime, but as today’s slide in equities show, the system remains fragile.  However, for global investors, what happens in Shanghai and Shenzhen stays there, and that is a healthy and desired development.