- Forex today was sent the DXY to a one-year high after the Chinese authorities put renewed pressure on Chinese yuan in yesterday’s Asian session.
- In NY, the dollar was on the backfoot and ended up pretty much flat after CNBC screened a teaser interview clip where Trump revealed that he is not thrilled with higher interest rates.
For the first time since 9 August 2017, the yuan fixing was set beyond 6.70. In response, commodity-FX was wallopped and the dollar soared to 95.6520. When Trump’s comments were aired, the dollar crash landed down to 94.93 before recovering to 95.25 where it consolidated between there and 95.16.
This all leads to a flight to Treasuries and US 10yr yields that had initially risen to 2.90% started falling during the NY session and dumped to 2.83%. The two-year yields similarly fell from a decade high at 2.63% to 2.58% – (Fed fund futures yields continued to price 1 ½ more hikes in 2018).
Currency action
Meanwhile, the euro nor the yen are positive substitutes for the dollar’s yield advantage and the moves are likely to be short-lived. Nevertheless, EUR/USD bounced off 1.1575 to 1.1678, clearing the July 18 high and the 21-D SMA at 1.1662 but the rebound still needs to produce a close above the 50-D SMA to gain traction at 1.17 the figure. USD/JPY dropped from a whisker away from the 200-W SMA at 113.22, (just above is where the 61.8% of the 2016-18 drop at 113.27-28 is located), to 112.06 while the yen claimed back its safe-haven status. However, it failed to break down below 10-DMA at 111.96 where stops are located.
Sterling was making its case for a close below the 10-W SMA at 1.3074, extending its series of daily lower lows to 1.2957, ( new 2018 low after June UK retail sales miss), before rebounding on the Trump noise back to a close of 1.3013, (Trump fuelled high 1.3049). Brexit still weighs – (some analysts are calling for as low as 1.1200 on a hard Brexit outcome). The cross was moving up to 0.8949, +0.47%, on Brexit angst along with the EUR yield differential vs GBP and USD narrowing. However, analysts at Scotiabank argued that ‘the BoE expectations for August are little changed’ at 83% priced for +25bps on Aug 2nd – i.e. Brexit is still the biggest concern here.
As for the antipodeans, following suit of the Chinese devaluation of its currency, EMs fell apart and the Aussie and Kiwi proxy trade responded accordingly. AUD/USD made a new short-term low falling from fell from 0.7440 to 0.7323 before bouncing to 0.7380. The kiwi fell from 0.6780 to 0.6714 before bouncing to 0.6762 on the Trump news as well.
Key notes from US session:
- Renewed pressure on Chinese yuan – ABN AMRO
- Wall Street closes in red on risk-aversion and dismal earnings
- US Pres. Trump worries that higher rates would ‘nullify’ work his administration has done – CNBC
Note: there are no key events for the end of the week.
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