Soft Deval of Yuan Spooks FX

Boris Schlossberg BKTraders and Prop Traders Edge

Market Drivers June 27, 2018
Risk off as USDCNY at 6-month highs
Equity flows drive FX
Nikkei -0.31% Dax -.73%
Oil $70/bbl
Gold $1255/oz.
Bitcoin $6075

Europe and Asia:
No Data

North America:
USD Durable Goods 8:30

USDCNY hit 6-month highs in Asia session trade, breaking above the 6.6000 barriers and spooking the FX markets as the soft devalultion of the currency appears to be another salvo in the trade war between China and US.

Equity markets across the world were lower, with DAX particularly hit hard as it dropped by -0.75% causing risk off flow in high beta currencies with all the major FX pairs save for the yen, lower against the buck. The EURUSD was hit especially hard with the pair dropping towards the 1.1600 figure once again as it touched low of 1.1621 in morning London dealing.

Despite yesterday’s relief rally caused a massive backpedal on the part of the Trump administration, investors are growing increasingly more concerned that rhetoric could turn to policy and irreparably damage the highly interconnected global trading system dampening growth worldwide. So far there have been no new negotiations between US and China and markets are fearing that the two nations could settle into a low grade war of attrition that will erode investor confidence and weigh on risk assets for a considerable period of time.

On the eco front the calendar was barren in Europe, although later on investors will look at BOE Financial Stability report to gauge whether the central bank is seriously considering hiking rates later this summer. Any modestly hawkish remarks by Governor Carney could help pop GBPUSD which dropped below the 1.3200 in risk-off selloff once again.

In US today the only report of note will be US Durable Goods orders, but the focus in FX will be squarely on equities. If stocks remain weak, expect further risk-off flows as trade war tensions will continue to be the dominant theme of the day and further weakness in high beta FX could take EURUSD to 1.1600 and GBPUSD to 1.3150 as the day proceeds.

Author

Boris Schlossberg

BKTraders and Prop Traders Edge

Boris Schlossberg was key speaker at the FXstreet.com International Traders Conferences 2010. Mr. Boris Schlossberg is a leading foreign exchange expert with more than 20 years of financial market experience.

GBP/USD recovers to 1.3450 region, looks to post weekly gains

EUR/USD stays below 1.1450 after US data

Gold rebounds from July lows, struggles to reclaim $4,000

CLARITY Act approval odds sink fast ahead of Congressional hearing

The United States (US) House Financial Services Committee’s Subcommittee on Digital Assets, Financial Technology, and Artificial Intelligence (AI) is holding a hearing titled “Building the Future of Finance: How the CLARITY Act Unlocks Innovation” on Friday.

Week ahead – Could technology earnings revive equities as geopolitical risks linger?

Oil prices rise, but the dollar posts losses as Middle East tensions persist. US earnings, the ECB and UK newsflow dominate next week’s agenda. US equity markets face a pivotal test as focus shifts to technology earnings.

-0.4%: Why the biggest CPI drop since 2020 couldn't buy back a single cut

The June CPI fell 0.4% on the month, the largest one-month decline since April 2020, dragging the annual rate to 3.5% from May's 4.2% and snapping a three-month acceleration streak. Core prices went nowhere, flat on the month and down to 2.6% YoY, both under consensus.