Chinese yuan is upbeat with trade talks with the US and the Turkish lira continues to rise
This time it was the Yuan which strengthened sharply (up 1.2%) after Chinese and US officials agreed to renew trade talks. Beijing said they would send a delegation to Washington DC at the end of the month.
Risk sentiment rose while Emerging Market currencies settled. Turkey’s Lira continued its rebound, ending up 2.75%. The Dollar Index (USD/DXY) slipped further while the Aussie recovered.
Wall Street stocks rose on strong earnings from US food retailers, highlighting the robust economy.
Outlook: After a hectic week where volatility rose and fell, markets look for some stability. The CBOE Volatility Index (VIX) lost 8% on the trade talk hopes.
Meantime President Trump was quoted as saying that China is not able to give the US a deal that is acceptable. US Treasury Secretary Mnuchin said that Turkey would face more sanctions if they refuse to release a US Pastor whom they claim is illegally detained. While trade issues remain forefront, markets are watching economic data releases.
Trading View: Data releases were mixed. Australian Employment fell for the first time since May, the losses came from part-time work. UK Retail Sales beat forecasts, rising more than double the expectations. US Housing data was mixed, while the Philly Fed Index showed a sharp decline, the lowest reading in 21 months. Concern on changes in USpoliciestrade is rising.
Donald Trump praised the Dollar’s recent strength yesterday, tweeting that “money is pouring into our cherished Dollar like rarely before”. Almost exactly a month ago, Trump said that he was not happy the Fed raised rates and that the stronger Dollar “puts us at a disadvantage”. Markets did not take much notice. The Dollar was lower against most of the Majors except the Swiss Franc which weakened on the improved risk sentiment. The Dollar also fell against most Asian and Emerging Market currencies. The Greenback rally is stalling near its 14-month high. The speculative community is long Dollar bets. A corrective pullback is likely in the near-term.
USD/DXY – The Dollar Index (USD/DXY) eased 0.13% to 96.587 (96.701 yesterday). USD/DXY traded to an overnight high of 96.765. Immediate resistance lies at 96.75 and then 97.00. Overnight low traded was 96.316. Immediate support for the Dollar Index can be found at 96.30 and then 96.10. A breakthrough 96.10 could see a gap filled back to 95.70. Look to sell rallies with a likely range today of 96.10-60.
EUR/USD – The Single currency closed 0.29% higher at 1.1377 (1.1350 yesterday). The overnight high traded was 1.14089. Immediate resistance on the day lies at 1.1400/10. The next resistance level is at 1.1430, and a clean breakthrough that could see a gap filled up to 1.1480/1.1500. Immediate support can be found at 1.1350 and then 1.1310. Strong support lies at the low on Wednesday which was 1.1301. It was quiet on the data front as Europe celebrated the Assumption holiday mid-week. Euro Zone Q2 Final Headline and Core CPI data are due out today. German 10-year Bund yields recovered to 0.32% from 0.30% yesterday. The benchmark US 10-year Treasury yield was up 1 basis point to 2.87%. Look for the Euro to consolidate with a likely range of 1.1360-1.1420.
AUD/USD – the Aussie rebounded off its lows supported by the comeback in the Chinese Yuan and commodity prices. Copper prices rebounded almost 2% while Silver climbed 1.32%. While Australian Employment fell last month, most of the drop was in part-time work, which lost 23,200 jobs. Full-time Employment showed a gain of 9,700 jobs. June’s Employment gain was revised higher by 7,300 jobs and the Unemployment Rate dipped to 5.3% from 5.4% in June, and the lowest since December 2012. AUD/USD closed at 0.7263, up 0.345% from 0.7242 yesterday. Immediate resistance lies at 0.7290 (overnight high 0.72865). The next resistance level comes in at 0.7320 and a breakthrough that would see a gap filled back to 0.7300. Immediate support lies at 0.7245 and then 0.7220 (overnight low 0.72138). Look to trade a range today of 0.7250-0.7320. Aussie specs are short of the currency and a squeeze may be in the making soon.
USD/JPY – ended with modest gains to 110.92 from 110.73 yesterday as risk sentiment improved. Overnight high traded was 111.12. Immediate resistance for today lies at 111.10/20. Immediate support can be found at 110.70 and then 110.40. Japan’s ten-year JGB yield was unchanged at 0.09%. Look for a likely trading range today of 110.65-111.15. Just trade the range shag on this one.
GBP/USD – Sterling rallied to an overnight high of 1.27542 after UK July retail sales beat forecasts, rising to 0.7% against expectations of 0.2%. June’s retail sales fell 0.5%. Despite the impressive data, the Pound failed to hold on to its gains and settled at 1.2715 at the close, up from 1.2700 yesterday. Fears on how Britain will leave the European Union continued to weigh on the Pound. Sterling sank to 1.2662, its lowest since mid-June 2017. The currency has slid 12% since April. The speculative community is currently short GBP bets, the largest amount since May 2017. Immediate support for the Pound lies at 1.2685 (overnight low) and 1.2660. Immediate resistance can be found at 1.2730 and then 1.2750. A break up through 1.2770 could see a pullback to 1.2820. Look for a likely range today of 1.2690-1.2790.
USD/ZAR – The rand continued its substantial see-saw swings against the dollar on Thursday, first firming by 1.6% and then again weakening to trade roughly even by the early afternoon.
The rand opened the day’s trade at R14.56/$ and rapidly firmed to R14.32/$ before weakening. An analyst says the period of sharp fluctuations is not over.
“We expect large swings in the exchange rate with a wide range of R14.25/$ to R14.69 [On Thursday],” said Bianca Botes of Peregrine Treasury Solutions in a morning note. The actual trading range for Thursday thus far is R14.32 – R14.63.
Events and economic data releases today: Euro Zone July Final Headline and Core CPI (y/y); Canada July Headline and Trimmed CPI; US Preliminary University of Michigan Consumer Sentiment Index.
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