Yuan very close to threshold

Posted 09 October, 2018

The players were getting rid of Chinese stocks at the start of the week indicating stronger concerns in the market. Market fears were fueled by a recent increase of interest rate by US Federal Reserve, greenback's hikes, slower economic activity and US-China tensions. Moreover, the pessimism came from the PBOC which downgraded reserve requirements for banks as a way to maintain credit. This reflects the need for tougher steps to avoid a collapse. It is quite possible the PBOC still has enough monetary and lending means to support the country's economy that is slowing down now, though the stock market upturn requires a better environment in the country.

As of today, China's stock market improved somewhat, and now the players keep track of the Chinese yuan. The US dollar-to-yuan rate attempted to break the 6.93 handle again, whereas the price fixing was at 6.898. Thus, now the next point is the period when the rate touches a psychological level at 7. In the USA, the White House may probably define Beijing's move as a deliberate yuan downgrading by 9% over the past 6 months to get a jump in the war. We should wait for the next report of Steven Mnuchin to see whether he accused China in currency manipulation.

It is worth mentioning, that an economic slowdown is detected not only China but also in other developing countries. Seeing trading affected by import duties and trade tensions, the International Monetary Fund downgraded its global GDP outlook to 3.7% in 2018  and 2019 (July outlook – 3.9%).

At present, traders may monitor the changes of US Treasuries, especially on the yesterday's day off due to the Columbus Day celebration. The 10Y state bonds hiked to 3.2520% posting a 7-year peak. In case of further strengthening, global currencies and gold can face new selloffs.

Previous forecast

10 October, 2018 17:40

← Sterling gets some support in mid-week

The sterling has posted gains against the US dollar in the mid-week. At present, the sterling-to-US dollar exchange rate stands at $1.3183. According to the released data, industrial production rose by 0.2% m-o-m in August (0.4% upturn in July). The processing sector recorded a 0.2% decline, while the previous forecasts covered a 0.1% upturn. Construction sector plunged by 0.7% m-o-m against the anticipated weakening by 0.4% m-o-m. As for Brexit, the Labour Party, in particular, 30-40 members, reportedly can vote for the Brexit deal, which could lend good support to UK's Prime minister Theresa May. Specifically, Theresa May has reportedly managed to win the backing of 315 MPs. However, some from this list can stand against the deal due to intraparty clashes (this is about the officials that are in May's party but disagree with her Brexit plan).

Sterling gets some support in mid-week

Next forecast

08 October, 2018 12:27

Weekly analysis for EUR-USD – COT →

Non-commercial traders sold out all net short positions (7,500 contracts) and opened long positions for 6,700 contracts. Net position fell into the red after being a month in the black. Long positions were above the August level hitting the peak since early August. Commercial traders decreased net long position on EUR/USD contracts by 28,200 to 9,900. They have lowered positions after a 4-week increase. Net position started decreasing from the August peaks. Open interest dropped by some 11,200 to 555,500 contracts.

Weekly analysis for EUR-USD – COT
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