• Financial Institutions
  • Corporations
  • Travelers
  • SOLUTIONS
  • Foreign Bank Note Exchange
  • International Drafts
  • International Wire Transfers
  • Global EFT
  • Compensation De Chèques En Devises Étrangères
  • Traites Bancaires En Devises Étrangères
  • INDUSTRIES
  • Travel
  • Technology Companies
  • Payroll
  • Healthcare
  • Nonprofit
  • Partnerships

China's PBOC revalues Yuan higher by the most since June 2017

CXI December 4th, 2018

Summary

  • USDCAD: Dollar/CAD is having a rough start to the month of December.  Last week’s inability for traders to hold gains into the mid-1.33s, and the somewhat negative December seasonals we talked about, was a bit of a negative omen heading into the weekend, and then we got the upbeat news about an alleged 90-day truce between the US and China on tariffs at the G20.  Oil market headlines have been bullish so far this week, with traders continuing to talk about Alberta’s unprecedented 8.7% cut to oil production and OPEC’s 1.3M barrel per day cut (expected to be announced in Vienna on Thursday).  Bond traders are fretting about a possible recession after the 2s10s yield spread contracts to just 13bp.  Finally, we have a surging Chinese yuan to contend with, after the PBOC lowered the USDCNY fix last night by the most since June 2017.  All this is keeping USDCAD under pressure here, as traders now prepare for the Bank of Canada’s interest rate decision tomorrow (no change expected).  Liquidity may also come at a premium tomorrow as US stock and bond markets will be closed for a national day of mourning for former President George H.W. Bush, who died on Friday.  USDCAD is currently bouncing off chart support in the 1.3160-70s here and we think this could extend a little more should oil traders want to take some profits here.

  • EURUSD: Euro/dollar is galloping higher this morning as the world watches the Chinese yuan surge.  It makes us wonder what really happened during the meeting between Trump and Xi at the G20 over the weekend.  The media is still trying the digest the differences in the official communiques from both countries; Treasury secretary Mnuchin and economic advisor Kudlow dialed back expectations when they spoke yesterday, and senior Chinese officials have been rather quiet since the G20 summit.  Some rumors are now spreading that China would buy US treasuries and strengthen the Yuan (as part of the truce) and since the PBOC revalued the USDCNY fix sharply lower (Yuan higher) last night, there’s been broad USD selling across the board.  EURUSD has now rallied back above the 1.1400 mark, and last week’s bullish outside day pattern on Wednesday now looks like it was the positive harbinger.  The BTP/Bund spread trades steady at +285bp this morning as Italian bond traders eagerly await the country’s revised budget.  Italian PM Conte said to expect something in the coming hours and “my objective is to avoid Italy being penalized in a way hurts our country and risks also hurting Europe”.  While we think the chart technicals for EURUSD have improved here, we’d like to see a close above the 1.1450s before becoming more bullish.  ECB President Mario Draghi will be speaking at an event in Frankfurt at 3:30amET tomorrow.  Fed chairman Powell’s speech before the Joint Economic Committee tomorrow has been cancelled due to the national day of mourning.

  • GBPUSD: Sterling is recouping yesterday’s losses today, but from some odd headlines.  Bloomberg reported that Britain could be able revoke Article 50 unilaterally, according to an advisory opinion from the European Court of Justice (ECJ).  More here.  Traders are celebrating this “ability to cancel Brexit” headline, oddly enough, but we don’t think there’s much behind it.  The market is extremely glittery as traders await this weekend’s debate between Theresa May and Jeremy Corbyn and next Tuesday’s massive parliament vote on the tabled Brexit draft (which could be historic).  We think GBPUSD continues to chop around the 1.27-1.28 range for the time being.  The funds remain net short GBP (long USD) as of Nov 27th, but this net position is now half of what it was at its extreme in September.

  • AUDUSD: The Aussie benefitted handsomely from the supposed truce in the US/China trade war; gapping higher to start the week.  However, the market now struggles with new chart resistance in the 0.7370-80s and traders have failed to break yesterday’s highs despite the plunge in USDCNH today (surge in Chinese yuan).  This technical failure has invited some sellers in now, and we’re starting to wonder if the market might want to fill Sunday’s opening gap before thinking about further upside.  The unfilled portion of the chart gap is approx. 0.7310-0.7345.  The Reserve Bank of Australia (RBA) kept interest rates on hold last night and there was very little change in the dovish tone of forward guidance; all as expected.  Tonight brings Australia’s Q3 GDP figures (7:30pmET) and tomorrow night we’ll get a look at Australia’s Retail Sales and Trade Balance data for October.  The funds reduced their net short AUD (long USD) position to 54k contracts during the week ending Nov 27th, as the month long purge in positioning continues.

  • USDJPY: Dollar/yen is getting hammered this morning as the US 10-yr yield collapses back below 3%, USDCNH plunges, and traders continue to fret about yield curve inversion.  An inverted yield curve (short rates higher than long rates) has preceded a number of previous recessions in the US and, with 10s over 2s trading at just +13bp, the thought is that the bond market is sending a signal that the Fed will have to pause on interest rate hikes in 2019.  USDJPY has smashed below chart support in the 113.30s, and this has now seen a swift move down to the next major support level in the 112.70s.  Some buyers are stepping in here as the broader USD bounces in early NY trade, but we think sellers will lurk on rally attempts.  The funds remained net long USD (short JPY) going into Nov 27th. 

Tune in @EBCTradeDesk for more real-time market coverage.

 

Market Analysis Charts

USD/CAD Daily Chart

USD/CAD Hourly Chart

January Crude Oil Daily Chart

EUR/USD Daily Chart

EUR/USD Hourly Chart

USD/CNH Daily Chart

GBP/USD Daily Chart

GBP/USD Hourly Chart

EUR/GBP Daily Chart

AUD/USD Daily Chart

AUD/USD Hourly Chart

March Copper Daily Chart

USD/JPY Daily Chart

USD/JPY Hourly Chart

U.S. 10-Year Yield Daily Chart

Charts: TWS Workspace


About the Author

Erik Bregar

Erik Bregar - Director, FX Trading

linkedin twitter

Erik works with corporations and institutions to help them better navigate the currency markets. His desk provides fast, transparent, and low cost trade execution; up to the minute fundamental and technical market analysis; custom strategy development; and post-trade services -- all in an effort to add value to your firm’s bottom line. Erik has been trading currencies professionally and independently for more than 12 years. Prior to leading the trading desk at EBC, Erik was in charge of managing the foreign exchange risk for one of Canada’s largest independent broker-dealers.

Interested in creating a custom foreign exchange trading plan? Contact Us or call EBC's trading desk directly at 1-888-729-9716.


About Exchange Bank of Canada
Exchange Bank of Canada (EBC) is a Schedule 1 bank based in Toronto, Canada. EBC specializes in foreign exchange services and international payments providing a wide range of services to financial institutions and corporations, including banknote foreign currency exchange, travelers' cheques, foreign currency cheque clearing, foreign currency bank drafts, Global EFT and international wire transfers through the use of EBC's innovative EBCFX web-based FX software www.ebcfx.com.

Disclaimer: All product names, logos, and brands are property of their respective owners. All company, product and service names used in this website are for identification purposes only. Use of these names, logos, and brands does not imply endorsement.
This publication has been prepared by Exchange Bank of Canada for informational and marketing purposes only. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable, but no representation or warranty, express or implied, is made as to their accuracy or completeness and neither the information nor the forecast shall be taken as a representation for which Exchange Bank of Canada, its affiliates or any of their employees incur any responsibility. Neither Exchange Bank of Canada nor its affiliates accept any liability whatsoever for any loss arising from any use of this information. This publication is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any of the currencies referred to herein, nor shall this publication be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The general transaction, financial, educational and market information contained herein is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a "call to action" or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. You should note that the manner in which you implement any of the strategies set out in this publication may expose you to significant risk and you should carefully consider your ability to bear such risks through consultation with your own independent financial, legal, accounting, tax and other professional advisors. All Exchange Bank of Canada products and services are subject to the terms of applicable agreements and local regulations. This publication and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced in whole or in part, or referred to in any manner whatsoever nor may the information, opinions and conclusions contained in it be referred to without the prior express written consent of Exchange Bank of Canada.