Chinese yuan dips

Daily Analysis - 19/07/2018

Fed’s Powell upbeat but sees trade risks

The FX space saw little action on low trading volumes and no catalysts during the summer lull. The dollar maintains strength on the back of a hawkish Fed President Powell. The main movers overnight were in the Australian dollar and the Chinese yuan. A lot of focus is in the equity markets, particularly in the United States as earnings season contuse with some great results out yesterday from Morgan Stanley and IBM. Microsoft is due to announce after market close today.

Aussie gains were short-lived

The headline number of 50,900 jobs created in Australia was well over the 16,700 jobs that were expected and the 5.4% unemployment rate was the lowest in over five years. However this was not enough for the Aussie to sustain gains. The AUDUSD pair initially jumped higher on strong data but the 40 pip gain was soon reversed as the $0.7440 proved to be a strong resistance level. The strong data [print may not be enough for the RBA, as the central bank needs to see more wage inflation. Meanwhile trade war fears linger, and as China is a strong trading partner of Australia, this tends to weigh on the AUD.

Trade War concerns see Chinese yuan at one year low

The USDCNH pair continues to move higher to a one-year high on comments by China’s foreign ministry that it doesn’t want a trade war but is not afraid of one. This sent jitters in the markets as the trade spat with the US could escalate. Meanwhile the PBOC (China’s central bank showed little sign of intervening in the FX markets). A stronger USD lately is also a contributing factor and USDCNH may have room to run higher.

Sterling under pressure

The pound is under pressure as domestic politics and lack of clarity in the Brexit situation is giving little reason to buy the British currency. The clock is ticking and the UK is due to leave the EU in March, while there is no clarity yet on what the Brexit deal will be. Meanwhile, focus turns to UK retail sales data due today. Can GBPUSD hold above the key support at $1.3000?