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China Devalues Yuan Currency to Stay Competitive

A guest post written by DAR Wong

Currency Market Observations – 17 August 2015

Fundamental Outlook

The U.S. economy stays in flat pace while job market stagnates. China surprises market investors by devaluing Yuan and slows down regional equity demand. Greece passes the third bailout test and will sign the pact of new loan package with European lenders. U.K. keeps the pace of economic recovery.

The U.S. wholesale inventories were up 0.9 percent in June after much higher than forecast, indicating slowdown in consumer demand. Retail sales was up solidly in June by 0.6 percent compared to par growth in prior month. The core data, excluding automobile sales, rose 0.4 percent and in line with median forecast.

Weekly jobless claims filed by Americans increased 5,000 to a seasonally adjusted 274,000 for the week ended 8 August. Industrial output including manufacturing, mines and utility climbed 0.6 percent in July and better than forecast.

Another report on U.S. producer prices rose 0.2 percent and lower than 0.4 percent in June. Core prices stayed unchanged at 0.3 percent gains.

The People’s Bank of China (PBoC) announced yuan devaluation at 2 percent for containing the deflation. Stock prices softened while demand rushed into Gold and treasuries. Regional equities traded lower after news was released. Analysts believe the monetary move as stimulus to stay competitive in exports.

Japan’s current account in June grew at JPY1.3 trillion and lower than expectation, after report for May at higher JPY1.64 trillion surplus. Consumer confidence based on household survey gained at 40.3 in July but lower than 41.7 in prior month.

Japan’s core machinery orders plunged 7.9 percent in June against positive gains in May, signaling cutting down in budget spending by companies.

German ZEW economic sentiment based on investors’ confidence slides to 25.0 index in August after it was reported at 29.7 last month. Prelim GDP for Germany in second quarter gained 0.4 percent and slightly below expectation of 0.3 percent.

Before weekend, European governments have agreed to issue a third financial bailout for Greece. Finance ministers of the 19-nation Eurozone endorsed a EUR86 billion (USD96 billion) loan package, after a total of EUR240 billion was lent out since 2010. The fresh money will roll over 3 years as Greece enacts economic reform.

U.K. claimant counts for jobless benefits reduced by 4,900 cases and better than expectation, after the June reported at 200 increments in claims. Unemployment rate stays unchanged at 5.6 percent in June. The construction output rose 0.9 percent in June after it was revised at 0.1 percent gains in May.

Technical Forecast

Technical Forecast USD/JPY hit 125.28 highs last week but closed below the 125.00 benchmarks on weekend. This week, we foresee the market will thread sideways and supported at 123.00 levels. Consolidation is expected inside this range unless there is new fundamental news to lead the trend beyond it.

EUR/USD reveals neutral strength after it closed at 1.1107 for weekend. Market was bullish last week but saw some profit-taking on Friday. This week, it is crucial to gauge Monday direction as the trend will reveal the confirmation. Sinking below 1.1050 will probably kick off new selling pressure. Piercing above 1.1200 is a sign to drive up higher at 1.1400 regions.

GBP/USD is mild bullish but still trades in sideways trend. Technically, we foresee the range is constricted to 1.5450 to 1.5680 regions for time being. Only stepping beyond this range will indicate new direction trend in estimate 2 weeks’ time.

Dar Wong

This post is contributed by OPF Guest Blogger, DAR Wong.

DAR Wong is a registered fund manager in Singapore with 26 years of global trading experiences. You may reach him at dar@pwforex.com

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DISCLAIMER: This post is written for general information only. The author, publisher and/or any third party involved in the distribution of this work assume no legal responsibilities and shall have no liability whatsoever for any direct or consequential losses, costs or expenses arising from the use of the information contained herein.

 






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