Monday 21 June 2010

Yuan rising against the USD: no sign of central bank intervention

The official mid-rate was left unchanged earlier today but the market is obviously testing the waters by buying the Yuan against the USD to see where the new limits will be. Reuters is reporting a low in USD/CNY so far today at 6.8110 compared with the official rate at 6.8275 earlier in the day.

AUD maintains strength into European open

It's pointless trying to argue with the market which is insisting on maintaining a bullish tone for the AUD. AUD/USD is again close to its session highs and risk sentiment is definitely on. EUR/USD is also comfortable above 1.2400 and it will be interesting to see what Europe makes of the weekend developments.

ForexLive Asian market wrap: China introduces Yuan flexibility

"The recovery and upturn of the Chinese economy has become more solid with the enhanced economic stability. It is desirable to proceed further with reform of the RMB exchange rate regime and increase the RMB exchange rate flexibility" Exact details of how this new found flexibility will manifest itself remain in question What the papers had to say on the Chinese move Improved risk sentiment led to sharp gaps higher on the open in the AUD in particular The official Yuan mid-point was unchanged from Friday leading to some confusion but the Yuan has subsequently to 2-year highs against the USD Oil traded higher on improved confidence in global growth prospects Regional bourses rallied almost 2% Rightmove survey of UK house prices +0.3% MoM Greek PM says budget cuts will win over investors Fitch ratings see no chance of EUR break-up Fitch also says Japan PM claims of wanting to fight public debt will be tested The USD opened quite sharply lower this morning after the weekend announcement by China that it is to allow greater flexibility for the Yuan in currency markets. Risk was generally on and this sentiment outweighed the traditional approach to Yuan moves of selling the JPY crosses and USD/JPY particularly. AUD/USD gapped 125 pips higher on the open, trading straight through stops above .8750 and leaving many traders with up to 100 pip slippage. The market pulled back to .8750 after the Yuan mid-rate was announced at exactly the same as Friday but the AUD has again rallied as USD/CNY fell. A stronger Yuan is not necessarily a good thing for the AUD but the market has ignored this and concentrated on risk sentiment. Range: .8754/.8835 (NY close .8700) EUR/USD took out stops above 1.2450 in early interbank trade, seeing a high of 1.2468. The Fitch and Greek statements will have generally helped the mood but we can expect to see some post-mortem enquiries in pairs like EUR/USD and EUR/CHF where there were stop-loss hunts in early thin markets. Range: 1.2369/1.2468, EUR/CHF 1.3695/1.3742 USD/JPY also took out stops in early trade, seeing a low of 90.04 in early interbank trade. The JPY crosses rallied as risk sentiment improved and USD/JPY jumped in line with them. Ranges: 90.04/95, 112.11/90 Sterling has been fairly quiet on the crosses, taking its lead from the EUR. Range: 1.4809/74 Markets: Nikkei +2%, HK +2%, Sydney +1%, Kospi +1%. Gold steady $1258/oz, Oil +1.25% $78.50/bbl.

Japan: All Industry Activity Index grows 1.8% in April slightly below expectations (Córdoba) - The All Industry Activity Index grew 1.8% in April against a 0.8% decrease the previous month, but the increase did not meet expectations around a 2.0% rise. This is the highest climb in the last 3 months.

The All Industry Activity Index released by the Ministry of Economy, Trade and Industry captures the monthly change in overall production by all industries of the Japanese economy. The index indicates the Japanese GDP and the overall growth figures, providing insight into current levels of Japanese economic expansion. Normally, a high reading is seen as positive (or bullish) for the JPY, while a low reading is seen as negative (or bearish).

All Industry Activity Index (MoM)


Oil approaches $79.00 on flexible Yuan (Barcelona) - Crude Oil for July delivery continued its relentless ascension towards higher levels and posted a rise beyond 2% compared to Friday's close. Renewed flows of heavy buying came in through the Asian session as investors cheered up a greater consent on a flexible Yuan by the People's Bank of China.

The news triggered a vigorous chain effect on worldwide oil demand growth expectations as crude rose passed a series of upside hurdles to encounter resistance at just under $79.00/barrel (highest level in June) At present, a minor downside correction sent the price to sit around $78.80 region.

The 23-month peg to the Dollar may represent significant benefits for Chinese imports on USD-denominated energy products, with oil consumption turning more attractive should the Yuan flow in a more indulgent fashion.

Forex: EUR/USD extends higher, hits prices above 1.2450 (Barcelona) - The Euro has remained trading on the steady upside channel from 4-year low at 1.1875 on Jun 7, pushing higher on Asian session to reach levels right above 1.2450, 4-week high, with support at 1.2355/60.

On the upside, the pair might find resistance at 1.2455 (May 28 high), under pressure ahead of the European opening, with next resistance levels at 1.2480 (intra-day level) and 1.2520 (May 6 low). On the downside, immediate support lies at 1.2400/15 (intra-day support/Jun 18 high), and below here, 1.2365 session low) and 1.2340/50 (Jun 15/16 high/ intra-day support).

EUR/GBP attempted to break higher on Asian session opening, but capped at 0.8400, the pair has pulled back to session low at 0.8340 ahead of the European opening. On the bigger picture, the pair remains slightly bullish, with resistance levels at 0.8380/85 and 0.8400. On the downside, support levels lie at 0.8355 and 0.8310.