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Global markets settle down after Chinese devaluations

Chinese monetary authorities have expressed some calm today after two surprise devaluations this week to their currency. Global markets have been a sea of red for much of this week after the People’s Bank of China took the surprising action of devaluing the yuan by as much as 4% in less than 48 hours. Today, things have steadied a bit after PBoC Vice-Governor Yi Gang said there was no basis for more devaluation in light of strong domestic economic fundamentals. There have been some rumors going around the market the PBoC is seeking a 10% devaluation but for now, those rumors are disputed as “nonsense” from Chinese decision makers. European shares and commodity prices rallied overnight and is setting the table for a smooth opening here in North America.

A number of inflation reports were released overnight, to little fanfare. German, French, Italian and Spanish CPI results were a mixed bag, having little impact on the euro. None the less, the single currency continues to slide off of Wednesday’s highs, giving some relief to a nervous (and short) EUR/USD market. About an hour ago, the minutes of the July ECB meeting were released for the first time. European policymakers noted Chinese volatility could have an impact that is bigger than expected on the EU’s delicate economic recovery, while also noting a US rate hike may also present “headwinds.” Real GDP in the EU remains mired near 2008 territory and forward guidance is hinged on industrial output rebounding from dismal springtime results. Surprisingly enough, the ECB expressed very little worries over Greece, arguing any risks were contained as leaders continue to drive toward an agreement.

Here in North America, US jobless claims will be released at 830am along with retail sales and import and export prices. This week, the market is anticipating that 270,000 Americans filed first time unemployment claims for the week ending August 6th. For the first time in a while, these numbers should take a back seat to July retail sales. The labor market continues to hum along so Wall Street will be keen to see the health of the American consumer, as the September Fed decision looms large. It is expected that retail sales grew 0.50% over the previous month and 1.50% over the same period in 2014. At this point, the risk lies on the downside so any significant number below expectations should generate new dollar selling momentum.

The Canadian dollar has been mired in a tight range since the start of this week. Top tier data is scarce this week, with only June new housing prices to drive markets this morning – not considered a major market mover. The developments in China and commodity prices continue to drive the Loonie, which is trading toward the lower end of the recent short term range. Last week, the USDCAD uptrend that had started way back in early June was finally broken. While the slope lower has so far been limited, we may begin to wonder if the CAD can mount a slight comeback over the coming weeks as Summer trading takes hold of the markets and some CAD “shorts” take profit at these very low levels. June manufacturing sales will close out the data calendar tomorrow for Canada but all eyes remain fixated on outside events.

Further reading:

US retail sales +0.6% – better than expected – USD rises

USD Index Looks For Support, EURUSD Near Resistance : Elliott Wave Analysis