Chinese stocks are falling and concern about the slowdown of the economy, Turkish lira is rising.
A slump in Chinese stocks on building worries about a slowdown in the economy outweighed a short-covering rally in the Turkish Lira. USD/CNH (Dollar/Offshore Chinese Yuan) rose 0.7%. The Dollar Index (USD/DXY) ended flat. Japan’s haven-Yen was the best-performing currency, up 0.5%. EM Currencies fell. Commodities plummeted. Silver sank 4.3%, Copper slumped 3.5%, Brent Crude Oil prices fell 2%. The Thompson/Reuters CRB Index fell to near 12-month lows, down 1.83%. Wall Street stocks fell for the 5th day out of six.
Outlook: Markets are rattled. Despite better-than-forecast US Retail Sales data and Empire State Manufacturing data the Dollar failed to break higher. Amidst the data releases yesterday, little notice was taken on the US TIC Net Long-Term Purchases which turned negative for the first time since February 2017.
The VIX (CBOE Volatility Index) climbed off its base and finished 10% up at 14.64 (13.3 yesterday). The heightened risk aversion saw stocks and commodities take a hit. Time to take those tin helmets out.
Trading View: The TIC or Treasury International Capital show the in and out flows of financial resources in the US. Market participants view this as the Government resource for offsetting the current Trade deficit. A negative reading does not bode well for the US Dollar. The market may be re-thinking their strategy that the US Dollar is the best currency to buy in the current environment.
Even while the Turkish Lira rallied, Turkey escalated their spat with the US, issuing their own import tariffs. Qatar pledged to invest US$ 15 billion to assist the Turkish banking system. This shows rising support for those nations engaged in the trade war against the US.
The Thompson Reuters CRB Index, what is it? The index comprises 19 commodities: Aluminum, Cocoa, Coffee, Copper, Corn, Cotton, Crude Oil, Gold, Heating Oil, Lean Hogs, Live Cattle, Natural Gas, Nickel, Orange Juice, Silver, Soybeans, Sugar, Unleaded Gas and Wheat. (Wikipedia). The CRB bears watching.
This will affect the commodities trading, risk-appetite and stocks. Commodity currencies are the Aussie, Canadian Dollar, New Zealand Dollar and the South African Rand. USD/ZAR soared almost 2% last night.
Global yields were lower. The benchmark US 10-year yield falling 4 basis points to 2.86%. Japanese 10-year JGBbonds yielded 0.09% (0.10% yesterday). The yield on Germany’s ten-year Bund was down 2 basis points at 0.3%. Market attention will be turned to today’s first-tier economic data releases out of Australia, China, Japan the UK and the US. (see below)
USD/DXY – The Dollar Index ended flat at 96.70 from 96.69 yesterday. USD/DXY traded to an overnight high of 96.984. Immediate resistance remains at the 97.00 and then 97.30 level. The overnight low traded was 96.651. Immediate support lies at 96.50/60 followed by 96.20. Look to a likely range today of 96.30-96.80. Prefer to sell rallies.
USD/JPY – slid 0.5% to 110.75 at the New York close from 111.15 yesterday. USD/JPY traded to 111.43 where it topped out as risk aversion set in. The fall in the US 10-year yield also weighed on USD/JPY. The overnight low was 110.43. Immediate support can be found at 110.40 and then 110.10 for today. USD/JPY has immediate resistance at 111.00 and then 111.30. Likely range today 110.00-111.00. Look to sell rallies.
AUD/USD – finished little-changed at 0.7243 in New York from 0.7238 yesterday. The Aussie rallied off its lows at 0.72023 against the US Dollar on short-covering mainly. A fall in commodities failed to push the Aussie lower. AUD/USD traded to a high of 0.72475. Immediate resistance lies at the 0.7250 level followed by 0.7280. Immediate support can be found at 0.7220 and then 0.7200. Australian Employment data for July was disappointed and AUD falls to 0.7213 . Likely range today 0.7225-0.7325. Prefer to buy dips.
EUR/USD – closed virtually flat at 1.1350 from 1.1347 yesterday. The rally in the Turkish Lira as well as lower US yields buoyed the Euro. EUR/USD traded to an overnight low of 1.13010. For today immediate support can be found at 1.1320 and then 1.1300. Overnight high traded for the Euro was 1.1355. Immediate resistance lies at 1.1360. The next resistance level is 1.1400. EUR/USD gapped from 1.1408 on Wednesday to current levels (1.1345). A corrective rally back to 1.1385 is likely, particularly in the current market environment. Look for a likely range of 1.1330-1.1430. Prefer to buy dips.
GBP/USD – Sterling slipped against the Greenback, closing at 1.2700 (1.2718 yesterday). Heightening Brexit worries are continuing to weigh on the Pound. Today sees the resumption of talks between the UK and the EU on Brexit in Brussels. UK economic data of late has mostly exceeded expectations. UK Headline and Core Retail Sales data are released later today. GBP/USD traded to an overnight low of 1.26616 before the rally back to current levels at the New York close. Immediate support on the day lies at 1.2680 and then 1.2660. Immediate resistance can be found at 1.2730 (overnight high 1.2735). Today’s likely range 1.2685-1.2785.
USD/ZAR– The rand headed for its biggest drop against the dollar since 2016, buffeted by headwinds, including a downbeat assessment of the economy by Moody’s Investors Service and a plunge in the biggest company on the Johannesburg Stock Exchange.
The currency sank as much as 3.4% against the dollar after Moody’s said the pace of South Africa’s fiscal consolidation will be slower than government forecasts due to weaker-than-expected economic growth and a rising public sector wage bill. The statement came shortly after Reserve Bank Governor Lesetja Kganyago said growth projections were “worrying” and hinted policymakers aren’t about to raise rates.
Events and economic data releases today: Japan July Trade Balance, Exports and Imports, Foreign Investment; Australia July Employment Change, Unemployment and Participation Rate, China July Annual Foreign Direct Investment; UK July Headline and Core Retail Sales (monthly and yearly); Euro Zone July Trade Balance; US July Housing Starts, Building Permits, Weekly Jobless Claims and Philadelphia Fed Manufacturing Index; Canada Manufacturing Sales for July.
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***Information contained in this newsletter are gathered from third parties and should not be regarded in any way as trade advice or recommendations by CM Trading. CM Trading does not recommend or advise traders or investors in their decision making but merely provides information from the market for its clients as additional information is made available as per the events occurring in the financial markets.
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