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Dollar Rally Hits the Wall of Chinese Intervention, Dragged Down by Mixed NFP

In early US session, Dollar is still trading as one of the strongest major currencies for the week, together with Canadian Dollar and Swiss Franc. However, it’s clearly losing some steam today and it’s in red against all others at the time of writing. One factor that triggered an immediately setback in greenback’s rally is China’s measure to halt Yuan’s decline. Another factor is that the highly anticipated non-farm payroll report is just mixed.

For today, Dollar is now the weakest one, followed by Sterling. Aussie, Kiwi and Loonie are all strong. For the week, Canadian Dollar is the strongest one, followed by Dollar and Swiss Franc. Sterling is still the weakest one, followed by New Zealand Dollar and then Euro.

Technically, EUR/USD breached 1.5174 minor support but there is no follow through selling yet. Without downside acceleration, consolidation pattern from 1.1509 will likely extend further. USD/CAD’s recovery completed at 1.3024 and it’s probably resuming recent fall from 1.3385, But we’d be aware of loss of downside momentum ahead for USD/CAD. EUR/AUD is a pair to watch. It’s now trading at 1.5681, very close to 1.5651 near term support. As long as 1.5651 holds, we’d stay bullish in EUR/AUD for another rise through 1.5888 resistance. However, break of 1.5651 will indicate near term bearish reversal.

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US NFP grew 157k, missed expectation. But average hourly earnings grew solidly by 0.3% mom

US non-farm payroll grew 157k in July, below expectation of 193k. But prior month’s figure was revised up from 213k to 248k. Unemployment rate dropped back to 3.9% as expected. Most importantly, average hourly earnings grew 0.3% mom, matched expectation. Also from US, trade deficit widened to USD -46.3B in June, slightly higher than expectation of USD 3.1B.

From Canada, trade deficit narrowed to CAD -0.6B in June, much smaller than expectation of CAD -2.3B.

China raises FX RRR to 20% to stabilize Yuan from free fall

Offshore Chinese Yuan staged a strong rebound, while Dollar tumbles across the board, after China’s Central bank announced measure to curb capital outflow and stabilize the falling Yuan exchange rate.

The People’s Bank of China said after market close that it raises the “foreign exchange risk reserve ratio of forward sales from 0% to 20%, effective August 6, 2018. According to the statement, it’s an act to “prevent macro financial risks, promote the stable operation of financial institutions, and strengthen macro-prudential management.”

In the next step, PBoC will “continue to strengthen the monitoring of the foreign exchange market,” and, “take effective measures to carry out countercyclical adjustments, maintain the smooth operation of the foreign exchange market, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.”

USD/CNH (offshore Yuan) tumbles sharply after hitting 6.912 earlier today. The pair could be heading back to 6.8 handle.

China announces additional tariffs on 5207 US imports, valued at USD 60B, rates from 5% to 25%

Also from China, the Finance Ministry announced the counter measures to US threat of imposing 25% products on USD 200B in Chinese goods. The State Council’s Customs Tariff Commission decided to impost additional levies on 5207 US products, totalling around USD 60B in value.

Additional 25% tariff will be imposed on 2493 products, additional 20% on 1078 products, additional 10% on 974 products and additional 5% on 662 products. The effect date is to be determined.

UK PMI services dropped to 53.5, back into slow lane

UK PMI services dropped to 53.5 in July, down from 55.1 and missed expectation of 54.7. Tim Moore, Associate Director at IHS Markit, said in the released that “the service sector moved back into the slow lane in July as business activity growth lost momentum for the first time since the start of spring.” And, “Brexit uncertainty had held back new project wins, reflecting risk aversion and a wait-and-see approach to investment spending among international clients.” He also noted that “the combination of slower output growth and softer price pressures during July will reinforce expectations that any further Bank of England rate rises will be both gradual and limited.”

BoE Carney: No-deal Brexit risks uncomfortably high, but we’re prepared

BoE Governor Mark Carney said in a BBC radio interview that the risk