Euro was hammered on Monday following the breakdown in coalition talks – an attempt by Germany chancellor Angela Merkel to form a fourth-term government.

This not only brought questions about her leadership and a stable government, but also raised the prospect of fresh elections, which probably would be held next spring. Market participants are also concerned about the future of Brexit talks, Russian Sanctions and unity of the Eurozone single market with a destabilized Germany government.

Euro slumped to 1.174 against US dollar overnight, with its immediate support and resistance level at 1.167 and 1.180 respectively. German political uncertainties is likely to weigh on euro in the near term. The US dollar index rebounded to the 94.0 area as a result, and USD/JPY had a decent rebound overnight to 112.6 area this morning.

US markets closed broadly higher last night, while precious metal prices fell alongside with the Volatility Index. This suggests the ‘risk off’ sentiment is fading and market is ready to embrace another round of rallies. Weaker Yen set Asian markets to open higher, with Nikkei 225 index jumping over 1% at market open. Investors seemed to neglect the impact of Yellen’s resignation and Germany uncertainties, while focus on improved earnings and macroeconomic elements.

Yesterday, the Shanghai Composite managed to make a big intra-day swing to finish at 0.3% higher after diving nearly 1.4% due to mounting concerns that the policymaker’s latest attempt to curb the country’s $15 trillion asset-management products would drain funds from the market. This move aimed to tackle the shadow-banking products in an attempt to control the longer-term financial risks at the expense of some short-term pain. Therefore, investors took this pullback as good entry opportunities and bargain hunted on technology stocks. Small cap and ChiNext index had a decent rally after an initial selloff yesterday.

Hang Seng Index finished 61 points or 0.2% higher, with Tencent (+4.12) contributing to most of its daily gain, whereas majority of the 50 index components ended the day lower. Nikkei 225 finished 0.6% lower, weighing down by stronger yen. USD/JPY has broken down below key support level of 113.0 and headed south towards the next support level at around 111.9 area (38.2% Fibonacci Retracement).

Alibaba made its latest move into China’s offline retail market by spending $2.9 billion to purchase 36% stake in Sun Art Retail – one of China’s largest hypermarket and retail operator. This strategic move aims to leverage its online business to further gain market share in China’s $4 trillion offline retail arena, forming an empire to compete against Wal-Mart and JD.com coalition. Its share price climbed 1.6% to US$188.0.

Volatility Index – Dec 2017

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