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Dollar Gains Broadly, as the Impact of Chinese Yuan Intervention Fades Quickly

Dollar gains broadly in a rather quiet start to the week. Asian stocks are given a lift by China’s move to stabilize the Yuan. But the impact quickly fades. At the time of writing, Nikkei is nearly flat after initial rally to 22635. Hong Kong HSI is up 0.7% while China SSE is down -0.77%. USD/CNH (offshore Yuan) is hovering around 6.84, comparing to last week’s high at 6.9126. The lack of follow through buying in Yuan helps clear a near term obstacle for more Dollar rally. Meanwhile, risk aversion could keep the Yen firm.

Technically, EUR/USD’s break of 1.1574 minor support last week is tentatively taken as a sign of range break out. Deeper fall is likely for 1.1507 key near term support next. GBP/USD is still way off 1.2956 support despite last week’s selloff. Nonetheless, we’d expect GBP/USD to have a take on this level soon. USD/CAD is at a point where it should be ready for a rebound, close to 1.2967 fibonacci projection level. We’ll see if USD/CAD could gather some buying from here.

Impact of PBoC FX RRR hike quickly fades, Yuan struggles to extend rebound

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The People’s Bank of China’s starts today to raise foreign exchange risk reserve ratio from 0% to 20%. It’s a move to stabilize the Yuan and curb capital outflow and was announced Friday after close. The move gives some support to Chinese and Hong Kong stock today but the impact seems to fade quickly. The Shanghai Composite index, SSE, edged higher to 2760.47 but it’s back down -0.77% at 2719.38 at the time of writing. It’s still more likely than not to revisit 2700 handle and possibly 2016 low at 2638.30.

USD/CNH (offshore Yuan) also stabilized at around 6.84 at the time of writing. There is no follow through selling after the spike move on Friday, following PBoC’s announcement. For now, 55 H EMA (0.6850) is capping the upside and more decline is mildly in favor back to 6.7703 support. But a break above the EMA could prompt another selloff in the Yuan back to 6.9.

UK TM Fox: 60-40 chance of no-deal Brexit due to EU intransigence

UK Trade Minister Liam Fox said in an interview with the Sunday Times that he saw “not much more than 60-40” chance of a no-deal Brexit. And he put the blame on EU as the “intransigence of the (European) commission is pushing us towards no deal.” He also warned that if EU chooses “theological obsessions of the unelected” over “economic wellbeing of the people”, then it’s a “bureaucrats’ Brexit, not a people’s Brexit”. He went further and said it’s up to EU to choose “ideological purity” or “real economies:”

Domestically, Fox also criticized that “there are people trying to undermine, to block and to thwart Brexit and having fought so long and hard to get to this point, I don’t want anything done to jeopardise our exit from the EU.” He added “the most important thing is that we actually leave the EU in March of next year. And my job is making sure that Britain is match fit for whatever Brexit outcome we have.”

ECB Lautenschläger very much in favor of policy normalization

ECB Executive Board member Sabine Lautenschläger said in an interview that she is “very much in favor of normalizing monetary policy”. That is, “gradually increase interest rates again”. However, she emphasized that’s on a precondition that Eurozone is “on a sustainable path towards price stability”. Also, she noted that “after pursuing such an expansionary monetary policy, it would be wrong to now move abruptly in the other direction”. And that “wouldn’t help either the economy or price stability.” The interview was done with Welt am Sonntag on July 30, published on August 5.

New Zealand Treasury: Any RBNZ tightening remains some time away

New Zealand Treasury released July’s Monthly Economic Indicators report today. The report noted mixed growth messages from strong wage growth but weakened retail spending. Risks are rising due to housing market, business confidence, and international trade tensions Meanwhile, inflation remained subdued but pressures appear to be gradually increasing.

The report also noted that inflation “remained subdued” and “any monetary policy tightening remains some time away”. It pointed out market pricing “currently implies no OCR increase for at least 12 months”. And, the Treasury expected ” outlook for inflation to remain stable for the rest of the year as the drivers in either direction remain largely in balance.”

Also, it noted that “possibly the most significant risk to the world growth outlook is escalating trade protectionism”. The report said tha