The Euro has hovered around the $1.16 mark but it hasn’t really capitalised on the dollar’s rally as of yet. The solid data is coming right out of China and this has calmed a lot of nerves about the recent US and SINO trade tensions. The dollar has weakened since it hit a three-week high and the prospect of a trade war has increased the demand for the currency by a serious amount. Traders have even come out to say that the dollar really did need a fresh impetus or even an escalation in order for the trade war to move higher. The Chinese trade data has been coupled with PBOC moves and this is quietening the markets. It also has a range-bound trading. This is coming from the FX Strategist over at Credit Agricole.
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The People’s Bank of China have also announced that they are going to reserve a requirement on the Forex market and they also want to have a stable yuan as well. China’s currency has recovered some of the losses but at the end of the day, it is still. 0.2 weaker when compared. This is especially the case when you look at the offshore accounts as well. The Euro did rise a little but it was not able to hold its gains at all. The USD appears to be very vulnerable when compared and this is especially the case when you look at the global movement market bonds. It is eroding the fundamental support that the USD has and it is also causing a narrowing interest in terms of the differentials as well. Sentiment is probably still going to stay pretty dominant but the markets are still somewhat vulnerable when it comes to the headline risk. Trump’s Twitter account is not doing much to try and cushion this either.
Traders may say that market sensitivity to trade wars have diminished since and that investors want to start seeing evidence for their disputes. They want to see that what they are doing is having a huge impact before they start to panic and when you look at the big picture, you will see that this is completely understandable. China’s July data is the first since the US imposed their tariffs. Of course, we have been reminded plenty of times that the trade dispute has not vanished entirely. The US representatives office have stated on Tuesday that the US are going to start collecting a 25% tariff on another $16 billion of China’s goods and this is going to happen later on in the month. With all of that being said, it is interesting to see that the Yen has risen by half a percent and that this happened after the board of Japan’s Bank disagreed on how the interest rates should be allowed to move forward. This is especially the case when you look at the central of Japan’s own bank target. It should also be noted that the Australian Dollar has been seen as a proxy for China’s own risk but this has slipped by 0.1% as well. Britain’s own pound skidded even more and this is due to Brexit worries piing up. It slipped way below $1.29 and it also hit a 9 month low when you compare it to the Euro. When you look at the emerging markets, you will see that this is also happening elsewhere and that this is not a good sign. Only time will tell what happens next but it is safe to say that what’s happening now isn’t good news at all.