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Yuan is growing, as China needs a strong course towards negotiations

Yuan is growing, as China needs a strong course towards negotiations

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Jim Anderson - Public Relations

The yuan rose after the Central Bank of China set daily fixing at a level stronger than expected by the market for the fifth consecutive time. The People’s Bank of China fixed the exchange rate at 7.0312 per dollar on Wednesday, breaking the nine-day lull after US President Donald Trump decided to postpone the introduction of the new tariffs on a wide range of Chinese goods until December.

The delay in the introduction of a 10% tariff on consumer goods, including toys and laptops, occurred after senior US and Chinese trade representatives spoke on the phone. Trump said the conversation was “productive” and that the delay was made “so that it would not hurt the Christmas shopping season”. The offshore yuan rose 1.6% yesterday on this decision.

“The fixing turned out to be much stronger than expected, probably because China needs to stabilize the yuan and prevent a steady devaluation before resuming trade negotiation”, said Scotiabank currency strategist Gao Qi, adding that on the continent, the currency is likely to trade between 6.9 and 7.1 for a dollar if there isn’t any important news about negotiations.

If trade tension increases, there is a 20% chance that the NBK could push the yuan in the direction of 7.5 per dollar, wrote BNP Paribas analysts Chi Lo in a note to clients.

The yen is growing due to the weak data from China and the postponement of US duties

The yen is growing due to the weak data from China and the postponement of US duties

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Jim Anderson - Public Relations

The Japanese yen rose on Wednesday, as the data of the Chinese economy, which did not meet expectations, strengthened the view that the trade war between the United States and China would not soon be resolved, despite the postponement of the introduction of additional duties by US President Donald Trump.

The increasingly fierce clashes between protesters and police in Hong Kong, fears of Britain leaving the European Union and tensions in the Middle East show that risk aversion and undermining major currencies could again erupt among investors.

The dollar index fell against a basket of major currencies to 97.804 points. The US dollar fell against the yen by 0.35% to 106.37 yen, while the Australian dollar fell by 0.45% to 72.21 yen.

On Tuesday, Trump announced a 10% postponement of new duties on some Chinese products hoping to mitigate their impact on sales before the Christmas holidays.

The Euro remained stable at $1.1171 at 7:00 London time, but fell by 0.33% against the yen. The pound also remained unchanged at $1.2056.

EUR / USD drops below 1.1200

EUR / USD drops below 1.1200

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Erik Holm - Head of media

The euro lost some of the points scored yesterday, and EUR / USD fell back to daily lows around 1.1190 / 80.

On Tuesday, the pair is trading lower due to the growth of the US dollar and risk aversion on the markets. Investors continue to take a wait-and-see stance due to the lack of news from the US-China “trade front” and the situation in Hong Kong, where mass protests continue for several weeks.

Today, German published the final CPI, and the data completely coincided with the preliminary assessment. Next, we are waiting for the ZEW Institute indexes in Germany and the Eurozone. During the North American session, the United States will publish inflation data and a weekly report by the American Institute of API oil reserves.

The reluctance of the euro to decline in an environment of risk aversion may be due to the already begun “repatriation” of assets, as well as the fact that funding currency. Another source of uncertainty was the political situation in Italy. The growth of the single European currency will remain limited as the ECB prepares to introduce new policy easing measures, potentially including a cut in interest rates, the resumption of QE, as well as the introduction of a multi-level system of deposit rates in September. The main factor of the pessimistic mood of the ECB and the weakening euro are the worsening forecast for the Eurozone economy and the lack of inflation in the region.

Support takes place at 1.1161 (minimum of August 12), 1.1101 (minimum of July 25) and 1.1026 (minimum of August 1 and 2019). Resistance is noted at 1.1232 (55-day MA), 1.1282 (high on July 9) and 1.1292 (200-day SMA).

 

EUR/USD approaches 1.1200

EUR/USD approaches 1.1200

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Jim Anderson - Public Relations

The pair EUR / USD today is consolidating in a narrow range just below 1.1200. After rising to weekly highs near 1.1250, the pair previously correctively fell below 1.1200 but remains above the support level of 1.1180. Against the background of some lull in the trade war between the USA and China, the political focus of Italy turned, and in particular the split in the coalition government, which increased the likelihood of early elections. If the elections take place, the victory may well go to the party of the Northern League Matteo Salvini.

Germany today releases its June trade balance figures, reflecting a narrowing surplus of up to € 16.8 billion. The current account surplus unadjusted to the time of year for the same period amounted to € 20.6 billion. Further, the focus of players will be US producer prices for July.

The growth of the single European currency will remain limited as the ECB prepares to introduce new policy easing measures, potentially including a cut in interest rates, the resumption of QE, as well as the introduction of a multi-level system of deposit rates in September. Earlier, the Central Bank has already changed the rhetoric: now it believes that rates will remain at "current level or lower", at least until mid-2020. The main factors of the pessimistic mood of the ECB and the weakening euro are the worsening forecast for the Eurozone economy and the lack of inflation in the region.

Resistance is noted at 1.1249 (monthly maximum on August 6), 1.1282 (maximum on July 9) and 1.1295 (200-day SMA). Support takes place on 1.1154 (10-day SMA), 1.1101 (minimum July 25) and 1.1026 (minimum August 1 and 2019).

The dollar is drawn into the war

The dollar is drawn into the war

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Erik Holm - Head of media

The stabilization of the Chinese yuan and the worst decline in industrial production in Germany in almost a decade in June somewhat dampened the fervor of the bulls for EUR / USD. There are rumors on Forex that China is unlikely to seriously devalue its own currency. Theoretically, this will create a competitive advantage and make life easier for exporters, but in practice, it's more complicated. When most bills are paid in US dollars, USD / CNY rally leads to lower trading volumes.

According to IMF research, a 1% increase in the USD index slows world trade by 0.6%. At the same time, strengthening the greenback puts a spoke in the wheels of foreign investors. Most likely, PBOC's reluctance to hinder the USD / CNY rally above the psychologically important mark of 7, as experts expected, is a common weapon demonstration.

In the real world, there are plenty of deviations from theoretical constructions. Contrary to the large-scale trade war, China's exports grew by 3.3% in July. The main reason is the desire of American companies to get more goods from Chinese partners before activating a 10% tariff on $300 billion in imports from September 1. On the other hand, warehouses in the United States are overloaded, so we should not expect that net exports will contribute to a rebound in China's GDP from the region of the 28-year-old bottom.

Along with the slowdown of the global economy under the influence of a trade conflict, the Fed may be nervous about pulling it into a currency war. The central banks of New Zealand, India, and Taiwan have weakened monetary policy, and this is happening around the world! According to most of the 60 Reuters experts, if the federal funds rate drops by 75bp before the end of 2019, the US dollar will weaken significantly. The consensus forecast for EUR / USD after 12 months is 1.15, the lowest rating in the last 2 years. In the short term, a breakthrough of one of the boundaries of the consolidation range of $1.1175-1.1245 will help the euro to decide on the direction of further movement.