Varengold Bank Research Team
Varengold Wertpapierhandelsbank AG
Good morning from beautiful Hamburg and welcome to our latest Daily FX Report. As China struggles to help calm a global rout its surprise currency devaluation triggered, its central bank may be making matters worse. Cutting lending rates, as the bank did Tuesday, causes more funds to flow to state-owned enterprises already experiencing overcapacity in industries such as steel. That deepens deflationary pressure and could potentially push real interest rates higher, not lower, according to the Conference Board. China’s stocks fell Wednesday, as the rates move and an accompanying reduction to the amount of cash banks must lock away failed to stem a $5 trillion selloff. Global investors are looking to People’s Bank of China Governor Zhou Xiaochuan to help repair investor confidence jolted by an Aug. 11 devaluation that heightened concerns over China’s decelerating growth.
Anyway, we wish you a successful trading day!
Market Review – Fundamental Perspective
The dollar rose by the most in five months against the euro as U.S. stocks surged after better- than- expected data on capital goods orders bolstered the outlook for economic growth. The greenback advanced against most of its major peers as U.S. stocks staged their biggest rally since 2011 after markets from Asia to Europe fell amid the worst global equity rout in almost four years. The dollar pared gains, and later resumed its climb, after Federal Reserve Bank of New York President William Dudley said the case for raising U.S. interest rates in September is less compelling amid recent market turmoil. The dollar advanced 1.8 percent to $1.1314 per euro at 5 p.m. in New York, the biggest increase since March 19. It gained 0.9 percent to 119.92 yen, the most since July 10. The Bloomberg Dollar Spot Index rose 0.7 percent to 1,202.94. The euro weakened for a second day versus the dollar as European Central Bank Executive Board member Peter Praet said the outlook for inflation may have worsened and that the ECB was willing to act if needed. Traders have reduced the probability that the Fed will raise rates at its September meeting to 24 percent, from 48 percent on Aug. 18. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase. About $8 trillion in market value has been wiped from equity markets worldwide since China’s central bank began devaluing the yuan on Aug. 11. A gauge of currency volatility climbed to the highest since February on Tuesday.
Daily Technical Analysis
XAU/USD (Daily)
After a strong recovery last weeks, Gold touched the downward trend line and felt again into bears control. It seems to be possible that short-sellers realize further lower prices versus the major currency. Both Moving Averages are showing very simple the downward action since 2014. The current increased volatility should be considered to manage positions.
Support & Resistance (Daily)
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