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%.