Forex Afternoon Wrap – 11/08

Aug 11, 12:53 pm

China devalues the Yuan. Greenback lifted

Key Notes:

  • BRC retail sales monitor y/y 1.2% vs. 1.8% previously
  • China M2 money supply y/y 13.3% vs. 11.7%
  • Australia NAB business confidence 4 vs. 8 previously
  • Japan preliminary machine tool orders y/y 1.6% vs. 6.6% previously
  • German WPI m/m 0.1% vs. 0.2%
  • German ZEW economic sentiment 25 vs. 31.7
  • Eurozone ZEW economic sentiment 47.6 vs. 43.9
  • US NFIB small business index 95.4 vs. 95.4
  • Canada housing starts 193k vs. 205k
  • US Preliminary unit labor costs q/q 0.5% vs. 0.0%
  • US preliminary nonfarm productivity q/q 1.3% vs. 1.6%

Later

  • UK CB leading index
  • US wholesale inventories

The currency markets opened today to the news of China devaluing the Yuan. The surprise announcement saw the US Dollar surge across the board in early Asian trading as the Yuan was weakened considerably losing over 2% for the day against the Greenback. The devaluation of the Yuan also weakened other Asian currencies including the Australian Dollar and the Kiwi. The AUDUSD was the weakest for the day losing over -1.2% followed by the NZDUSD which lost over -1.02% at the time of writing. The Japanese Yen was muted to the news from China as well as the economic data releases from Japan. USDJPY was trading stronger from the day’s open at 1224.58 to post session highs to 124.975 and gaining 0.23%.

The European session was quiet due to lack of any major news events. It was reported that Greece managed to seal a deal with its creditors concluding a close to two weeks of intense negotiations. The deal unlocks the new rescue package for Greece for as much as 86 billion Euros and paves the way for the regional European parliaments to vote on the deal. Greece is expected to make a payment to the ECB on August 20th and Greek authorities were optimistic that the national parliaments would pass the vote.

In terms of economic data, German ZEW economic data disappointed, falling to 25, below estimates of an increase to 31.7. The Eurozone ZEW economic sentiment on the other hand was stronger, posting a print of 47.6 above the estimates of 43.9

The Euro was relatively stronger against the Greenback as EURUSD was seen trading 0.38% higher for the day near 1.1065 after opening at 1.1023. There was no major news from the UK but the GBPUSD was mostly choppy. The currency was seen trading -0.14% lower for the day after a brief test to the daily highs of 1.5608.

In the US trading session, economic data included the preliminary labor cost and the nonfarm productivity index, both of which managed to beat the estimates. The Greenback was however muted to the news. The Greenback was well supported both by the Yuan devaluation and the hawkish comments from Atlanta Fed Governor, Dennis Lockhart who maintained an optimistic view of a September rate hike. His comments come in stark contrast to the views expressed by Fed vice-Chair Stanley Fischer who wanted to see inflation rise before the rate hikes.

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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