Another devaluation of the RMB: Causes and Consequences (Part 2)

On the other hand, the decline is typical for all Asian currencies. The main factors of this movement began in the first place, the mass selling of US debt, rising dollar and the weakening of the European currency. As a result, investors have shifted to work with the dollar, the market expects the Fed raising rates and the consequent further rise in the US currency, and no one looks at the Asian currencies. The volume of trading after the announcement of the devaluation of the yuan and its revaluation in fact has not changed, either in Shanghai or Hong Kong. On the Russian stock exchange these days it has been sold and bought the total amount of 10 to 19 million rubles of the Chinese currency, trading on the Hong Kong Stock Exchange demonstrates rare consistency - the yuan persistently reduced by 0.1-0.2% per day, with trading volumes in fact unchanged. It sais only that both international and Chinese investors do not believe in renminbi as a mechanism for currency speculation, so the prospects for the yuan to become the second reserve currency in two years (since the proposal from the IMF to the Chinese authorities of that possibility), haven't advanced at all.

Another devaluation of the RMB: Causes and Consequences (Part 1)

China remains faithful to the chosen course and periodically devalue the yuan. China's national currency has lost 12 consecutive sessions, and as a result, by early November the dollar was worth more than 6.9 yuan. So cheap the yuan was not worth since 2008. China's central bank stopped this trend only recently, raising the so-called reference value of the currency by 0.3%. However, that did not helped the general trend of the Chinese currency. Will it help in the future, and most importantly - is approaching or moving away the time when the Chinese currency will cease to be an exotic?
On the one hand, the behavior of the Chinese financial authorities, until recently, is quite consistent with the chosen strategy of the country to maintain the internal market and to create the most transparent environment for speculative operations with currency. Currency trading with the yuan on the mainland Exchange (Shanghai Currency Exchange) are inert - they are strictly regulated by the Central Bank. Trading on the Hong Kong Stock Exchange fully justified the possible settlement of the Chinese authorities to attract players for a fall. Even after the news about the increase in the reference value of the yuan against the dollar in Hong Kong, it continued to fall.

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GBP

On Friday, the main news of the day was published data on GDP growth in the UK for the 3rd quarter. Q3 was the most difficult for England, which is primarily associated with the Brexit and, accordingly, with the significant devaluation of the GBP. In the first month of the quarter, there was a large outflow of foreign capital, it was provoked by the extremely negative forecasts of economists. Later it turned out that the devaluation of the GBP has had a more positive effect than negative, like increased domestic demand, increased inflation and stimulus measures taken by the Central Bank to improve the condition of the banking sector.
GDP also does not make exception - in the third quarter it grew by 0.5%, the value coincided with the previous period and forecasts.
As for the graphical analysis on the D1, it is believed that the pair has reached its local maximum, and now it expects the decline to the level of 1.2070 first, and then even lower - to the support of 1.1945. The nearest resistance - in the zone of 1.2495-1.2515, 1.2560 and 1.2675 next.

Thanksgiving and Black Friday

Yesterday the United States celebrated Thanksgiving Day and started buying at discount. US financial markets were closed and trading activity has declined markedly, but with the opening of the last trading session of the week in Asia, the dollar came under selling pressure. And everything indicates that this correction can turn into a more active sales in the medium term with a subsequent entry in sideways channel at the current highs.
After the upgrade by the US dollar index highs in the 102nd figure sellers activity increased. Of course, we can talk about fixing profits on long positions, but the fundamental reasons for further growth is not enough. At the same time reports on the change in the balance of foreign trade will be released today. Traditionally, this indicator is in the negative zone, but an increase in the deficit is very negative for the US dollar, especially given its strengthening these days. The experts forecast increase in the deficit to 59.2 billion. The excess of the projected growth rate may enhance the activity of the sellers, but surprisingly good values ​​in the report yet can strengthen the US dollar.
Accordingly, the further strengthening of the EUR/USD, AUD/USD and a weakening USD/JPY is a part of the terms of the basic scenario. But currently there are no strong trading signals to open positions on these instruments.

Dollar rises in price against the yen, depreciates against the euro

During today's Asian trade, the dollar continues to appreciate against the yen depreciates against the euro.
By 6:30 GMT the dollar against the yen rose to 113.57 yen compared with 113.33 yen at the close of the previous session. During the trade session the value of the dollar rose to 113.9 yen - the highest since March 15.
The US currency has risen by almost 10% against the yen since November 4, and its rise over the 3 weeks is the highest since 1995, Bloomberg reported.
Euro at the same time was worth $1.0574 versus $1.0554 at the close of the previous trading.
Forecasts of the acceleration of inflation and the rate of US GDP growth in the implementation of policies D.Tramp voiced during the election campaign, has led to an increase in US Treasuries yields to the highest level this year. It supports dollar, as well as promotes the growth of expectations that the Fed will raise the base interest rate, experts say.
Minutes of the Fed's November meeting, released on November 23, showed that the leaders of the US central bank is actively discussing the rise in interest rates during the last meeting, and came to the conclusion that the increase may become expedient quite soon.
Traders estimated at 100% the chance of a rate increase by the Central Bank in the US December meeting.

USD/CAD is stable in low trading activity

The US dollar was almost unchanged against the dollar on Thursday in Canada, as sentiment on the US currency remain, despite the rebound in oil prices supported the Canadian commodity currency.
Trading activity will be low, as US markets are closed on the occasion of Thanksgiving Day.
In early US trade, the pair USD/CAD reached 1.3535, the highest since November 18, the pair subsequently consolidated at 1.3498.
The pair was likely to receive support at 1.3420, Wednesday's low and resistance at 1.3566, the high of November 18.
The dollar was supported against the backdrop of expectations that the presidency of Trump would increase budget spending and tax cuts, which, in turn, will contribute to the acceleration of economic growth and inflation.
Accelerating economic growth and inflation will allow the Fed to continue tightening monetary policy.
Dollar rally was also triggered by rising expectations that the US central bank will raise rates at the meeting on 13-14 December.
Late last week, the chairman of the Federal Reserve Board of Governors Janet Yellen said that the rate increase, "is expedient in the near future."
Meanwhile, the Canadian dollar was supported against the backdrop of rising oil prices on Thursday.
Canadian fell against the euro, EUR/CAD rose by 0.20% to 1.4262.

The US dollar has updated a 14-year high

The dollar rose against other currencies on Wednesday, as the release of upbeat US data on orders for durable goods added optimism about the US economy and increasing rates in the US, which is expected next month.
The US Department of Commerce report said that orders for durable goods rose 4.8% last month, surpassing expectations for an increase by 1.5%.
Basic orders for durable goods (excluding transport) have increased in the last month by 1%, much higher than the forecasted increase of 0.2%.
On a less positive note, there was a report the US Department of Labor, which showed that the number of initial applications for unemployment benefits for the week ended November 19 increased by 18,000 to 251,000 from 233,000, recorded in the previous week (initially 235,000). Analysts had expected, that the number of applications will increase by 15,000 to 250,000 last week.
The dollar was supported against the background of expectations that the presidency of Trump would increase budget spending and tax cuts, which, in turn, will contribute to the acceleration of economic growth and inflation.
Accelerating economic growth and inflation will allow the Fed to continue tightening of monetary policy.
Dollar rally was also triggered by rising expectations that the US central bank will raise rates at the meeting on 13-14 December.
Late last week, the chairman of the Federal Reserve Board of Governors Janet Yellen said that the rate increase "is expedient in the near future."
The EUR/USD fell by 0.50% to a new 11-month low at 1.0546.
USD index, which shows the relationship of the US dollar against a basket of major currencies, rose by 0.49% to 101.59, updating the 14-year high.

Dollar has no doubt in the increase of the Fed's rate

The US currency continues to update the long-term highs against its competitors. After a short pause, the dollar "bulls" have intensified again and received new purchase driver. Markets regarded Thursday's rhetoric of Fed as "predatory" because J. Yellen warned about the risks of tightening with increasing rates and made it clear that the regulator will soon resume its tightening policy.
After receiving a new charge of optimism, USD sent euro to new yearly lows under the mark of 1.06, while the USD/JPY attacked the 110.00 barrier and at the moment is close to the next psychological level of 111.00. Despite overbought US currency, players can continue to open long positions due to positive expectations regarding future policy of Trump and the almost 100% probability of increasing the cost of credit in the last for this year meeting of the Federal Reserve.
Particularly deplorable is the situation with the pair EUR/USD. Here we must note the worsening divergence of monetary policies of two key Central Banks. If the state of the US economy justifies the policy tightening, as the Fed speakers do not tire repeating, the ECB intends to continue the stimulus. This intention has confirmed by the head of the European regulator M. Draghi. And in December, the ECB may decide to extend the program of buying assets, which expires in March next year, which promises the single currency further losses.
At the beginning of next week there will be another speech Draghi, and if his rhetoric will wear a pessimistic character with reference to the risks for the region, the EUR/USD may gain a firm foothold under the mark of 1.06 and go to a minimums from the beginning of December 2015 - the area of ​​1.0520.

Mario Draghi hinted at upcoming additional stimulus measures

Eurozone economic recovery remains heavily dependent on stimulus measures taken by the European Central Bank, said on Friday the ECB President Mario Draghi, hinting that the bank is likely to extend the program of "quantitative easing" for a total of 1.7 bln euro at its next meeting, which will take place on 8 December.
"We still can not cancel our vigilance", - said Draghi on a banking conference in Frankfurt, adding that the ECB will continue to act as justified by using all the tools that are available, while inflation did not grow sustainably.
He warned that central bankers do not yet see consistent strengthening of basic dynamics of prices and said that the ECB is committed to comply substantially the policy of monetary stimulus.
Central bankers from the ECB are preparing for quite a crucial meeting on December 8, which is expected to decide whether to extend the program of "quantitative easing." At this stage, the program should be completed at the end of March 2017.
By purchasing bonds, the ECB hopes to reduce real interest rates in the euro area, thereby encouraging lending, economic growth and inflation, analysts say. Despite these efforts, inflation in the region last month rose by 0.5% and remained still too far below the target of the ECB from just under 2%.

Confidence in the Fed raising rates rising

The dollar slowed the "bullish" move, but it's not in a hurry to give up the position against the main competitors. Markets played g Trump's victory and the main expectations of its new policy, which resulted in a slight pullback of the American currency. However, the advantage is on the side of the USD, which returns to the theme of the December rate hike.
Market confidence that the Fed will not stand idle at the next meeting, is growing again - the probability of increasing of borrowing costs currently exceed 80%.
In addition, markets are encouraged by the Trump's election promises, which featured an emphasis on fiscal stimulus. This implies a decrease in the need for monetary stimulus, and therefore more vigorous tightening of monetary policy of the Fed. Thus, the long-term prospects of the dollar continues to look positive, and if over the coming months the US economy will present no surprises, at the end of the year the currency will have to perform even more powerful rally.
EUR/USD, which currently is unable to rise above the mark of 1.08, remains under pressure with the prospect of testing new yearly lows near 1.07. The loss of this level will aggravate the outlook for the pair and will open the way to the area of ​​1.0640 and below.

Strengthening of the dollar threatens the financial stability

A representative of the Bank for International Settlements said, that there are risks of strengthening of the US dollar for the global financial system.
Head of BIS research department noted that the dollar replaced the CBOE Volatility Index as an indicator for risk appetite.
According to him, the appetite for risk decreases as the strengthening of the dollar. Shin also claims that the strong dollar is not beneficial to anyone.
Strengthening of the US dollar led to a disproportion between the interest rates on the market.
On Tuesday, the dollar index exceeded 100 points, but later dropped.
On the US dollar exchange rate today will affect the performance of 6 Fed members at various events.

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Trump's Advisor: We can do without a wall on the border with Mexico

Foreign policy adviser of the future US President Donald Trump has called into question the embodiment of one of Trump's key and symbolic promises for wall on the border with Mexico and said that it is less expencive to build a fence.
"I do not think we need to break swords about the differences between a wall and a fence," - said on Friday James Woolsey, who headed the CIA in the presidency of Bill Clinton, the husband of the recent Trump rival in the election.
"It may even be cheaper. And then, even though the fence, but it's a good fence I do not see any problems", - Said Woolsey in an interview with the Wall Street Journal and CBS television.
The world and the markets were shocked by the unexpected victory of the candidate, whose campaign has been surrounded by scandals and insults and was based on promises not only to reduce taxes, but also to prosecute illegal immigrants, which in the United States consist mostly of Mexicans. The peso fell to a record low on news of Trump won, as investors worried about the implemention of Trump's protectionist promises, full with problems for the Mexican economy.
Billionaire castigated Mexican immigrants, and even during his trip to Mexico and meeting with its president, promised to build a wall on the 3,200-kilometer border and make Mexico to pay for the project itself.
But after a personal contact on Thursday with outgoing President Barack Obama in the White House, Trump changed his tone. He expressed willingness to maintain some of the provisions of health insurance reform, which earlier promised to abolish, and his advisers are sending reassuring signals to allies abroad, worried by the election rhetoric of the Republican candidate.

The level of 66.666 rubles can be devilishly attractive for the dollar

The dollar/ruble rose by the end of the week in line with the trend of aversion from commodity and emerging currencies after the election of Donald Trump for US president, and from the point of view of technical analysis devilishly attractive for the dollar can become the mark of 66.666 rubles after a breach of number of important resistance levels.
On Friday morning the couple dollar/ruble has reached the value of 66,000 for the first time form August 4, the trading session closed at 66,1114.
Since Thursday the ruble in tandem with the dollar fell by 2.5 percent, more losses than ruble have currencies of a number of South American and Asian countries, partly due to Trump's intentions to conduct an expansionary economic policy of the USA, which could hit the export-oriented economies in the States.
Dollar is rising also because of the risks of accelerating inflation in the US, calculated in the possible scenarios for economic management of the new administration, which can speed up the process of raising rates, which also plays on the side of the dollar against higher-yielding currencies.

Dollar back on the top

After yesterday's shake-up, the rate of the dollar has stabilized and is trading at a "bullish" bias against most currencies. Investors continue to buy risky assets, against which one of the main outsiders remains the yen. USD/JPY easily broke 106.00 and has come close to the next psychological mark.
After Trump's victory the markets are wondering how policies of the new president will be reflected in the rate of growth of the US economy and the world economy as a whole. Rally in the segment of risky assets suggests that players are optimistic about the future, betting on the development of business, tax cuts and increased investment in infrastructure. At the global level, there are also fears that Trump would unleash a trade war that would hit many economies of the world.
Positive attitude of the USD was supported including by expectations with respect to the December Fed rate increase. Today, the probability of such events is estimated at 80%. In other words, the tightening policy of the regulator is considered a foregone conclusion, although in the moment immediately after the announcement of election results, the rate fell below 50%. Today, the players concerns about policy changes in the Central Bank partly dispelled by Trump's statement that he does not intend to request early retirement J. Yellen.
Among the next economic events that should pay attention to the aspect of the prospects of increasing the cost of credit in the United States, we can point the report on retail sales, announced for next Tuesday. If the result exceeds forecasts, the remaining doubts about the December tightening will almost completely dispell, and the USD will receive an additional boost to growth.

Trump's victory stimulated the growth of Bitcoin

On Wednesday, the rate of e-currency bitcoin grows after the Republican Donald Trump won in the US presidential election.
Cost of the bitcoin jumped during the trading session by 4,1% - up to $733.61, according to data provider on the market cryptocurrency CoinMarketCap.com.
The bulk of bitcoins on Wednesday was bought for US dollars - it shows that the growth of the cryptocurrency was provoked by US investors, writes MarketWatch.
In the meantime, an inspection of the American tax services (Internal Revenue Service, IRS), made by the auditors of the US Treasury, has shown that the IRS is not doing enough to track the use of virtual currency.
The auditor's report notes the lack of coordination between the different departments of IRS in terms of control on circulation of the cryptocurrency, including bitcoin.
As in the case with the cash, the anonymity of transactions with virtual currencies can help people who are trying to get away from paying taxes, the report said.
At the moment, the most popular in the world cryptocurrency is bitcoin - the value of all bitcoins in circulation worldwide is estimated at $11.3 billion, shows the data from CoinDesk.

The new US President - Donald Trump!

The election campaign in the United States once again turned by 180 degrees, as director of the FBI Comey promised not to initiate criminal proceedings against Clinton. Polls claimed that her rating has risen sharply and the dollar jumped after falling at the end of the last week.
Survey results were wrong - we now know that they can not be trusted - it refers primarily to the European elections next year and the referendum in Italy in December.
Policy - is one big unknown. Nominally, as result of election, Trump controls both houses of the parliament, which means that he can implement large-scale political initiatives. However, given the fact that some members of his own party opposed his candidacy, he may have difficulty in complying with these plans - except, perhaps, replacing Obamacare with something else; Yellen's days at the Fed also are numbered (her mandate will end January 31, 2018), it is also likely to be implemented infrastructure investment and tax reform - the latter is most favorable for the US economy in the short term.
The first reaction of the market and further movement:
Safe assets have risen sharply in value against the USD, in particular this applies to JPY. Emerging-market and risk currencies, especialy MXN, collapsed. Given that such a reaction was expected, now that the results are already known, these movements quickly recoup in the opposite direction.
It's amazing how fast prices corrected after the first reaction. We can say that the uncertainty for some time reached a peak, and now we can return to a long-term long positions on the dollar and yen, and shorts in the euro.

The chances for Fed rates hike rise after the labor market and wages

The pace of hiring of workers in the United States in October remained strong, pushing wage growth and increasing the likelihood of Fed rate increase at its meeting in December.
The number of jobs outside agriculture rose by 161.000 due to demand in the construction industry, health, professional and business services industries, announced on Friday the Ministry of Labour.
Earnings in yearly base in the past month rose by an average of 2.8 percent, which was the most significant rise in seven and a half years.
On Wednesday, at the last meeting before the presidential election, the Fed left rates unchanged, as markets had expected, but made it clear that they can raise them in December, as the economy is gaining momentum, and inflation accelerated.
Last week, the statistics pointed to the acceleration of GDP growth in the third quarter. Since 2010, the business has created 15.5 million new jobs, nearly half of them - highly paid.

BoE bonfired the pound up

The decision of the UK Supreme Court that the government can not take responsibility for launching the procedures for Brexit without the approval of the Parliament as well as the changed course of policy of the Bank of England allowed "bulls" on the GBP/USD to withdraw from the prolonged consolidation. The participants of Forex market are talking about soft Brexit, as well as the possibility of transferring it from March 2017 to a later date. This has had a serious support to the sterling.
The results of the June referendum, the emphasis on the BoE monetary expansion and the threat of an economic slowdown under the influence of Brexit weights hung on the feet of sterling. By late autumn, it becomes clear that the euphoria of the "bears" on the GBP/USD over policy is comparable with similar feelings of "bulls" on the S&P500 due to the potential victory of Hillary Clinton in the presidential election in the United States. The change in the balance of power has turned back in the polls for US stocks, as all we've seen. It is time for pound sellers also to moderate their appetites.
However, much more interesting is the fact that Mark Carney and his colleagues believed that the 6% devaluation of the pound in October will lead to acceleration of inflation of 0.7% in 2017. The forecast for CPI was increased to 2.7% for the period 2017-2018. At the same time the central bank has emphasized the change of repo rate in either direction, depending on the economic outlook. Thus, if inflation is expected to grow faster (and in the opinion of a number of banks and investment companies, it is able to rise to 3.5-4% in the next year), the BoE will be forced to tighten monetary policy, which is a serious "bullish" driver for the pound.

British companies will have to adapt their equipment to the new coin of 1 pound

British companies have to prepare for the issuance of a new 12-sided coin of 1 pound, according to the Ministry of Finance of the country.
The site of the Royal Mint warns the companies of the need to adapt their equipment and prepare employees to the issue of the new coin, which is scheduled for March 2017. All machines that accept cash, have to be modified at this point.
There will be a 6-months long transition period for the companies to provide the ability to receive both new and old coins. After that, the current coin of 1 pound will be derived from a wide circulation, but most banks and post offices will accept old coins.
These actions are due to the fact that approximately every 30th coin of 1 pound now is a fake, according to the Mint.
"The new coin of 1 pound will be the most secure of its kind, and its features will be a serious barrier to counterfeiters," - said the representative of the Ministry of Finance David Gouk.
The new coin is composed of two metals: gold-colored outer ring - nickel and brass, inner ring of silver - from nickel alloy. On the coin there is an image that changes with graphic symbol of the pound sterling by the number 1, if you look at the coin at different angles, like a hologram. Around the rim on one side of the coin there is an inscription in tiny letters, "one pound".
In addition, the coin has the additional security measures to protect against counterfeiting, the details of which were not disclosed.

Canadian Carney decided to stay at the head of the Bank of England

The head of the Bank of England Governor Mark Carney said on Monday that he would remain in charge until July 2019, a year longer than planned, to ensure a smooth transition of the country from the EU, although still goes before the end of the procedure.
British pound, which collapsed by about 20 percent after the referendum on UK withdrawal from the EU because of concerns about the economic prospects for the UK, on ​​Monday rose to a daily high - $1,2240 on the news about the Carney's decision to stay as head of the regulator.
Canadian citizen Carney came under a barrage of criticism from politicians who favored a divorce with the European Union, since sounded the alarm, warning of the risks for the economy. He has the right to remain as a head of the British regulator until 2021, but decided to call it earlier.
"I am honored to extend my term in office for an additional year until the end of June 2019" - he wrote to Finance Minister Philip Hammond. The letter was published by the regulator.
"This should help to ensure an orderly transition of the United Kingdom to a new relationships with Europe."
The Government welcomed the decision of the 51-year-old financier.
Carney is the first foreigner in the 322-year history of the British central bank. The father of four students explained his desire to retire as early as 2018 by personal rather than political reasons.
However, the pressure on Carney was echoing similar pressure under which the regulators were in different countries of the West. US presidential candidate Donald Trump suspect the Fed keeping interest rates low because of the political pressures from the White House. The German Chancellor Angela Merkel called reasonable citizens' questions to the European Central Bank over the record low interest rates.