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PBOC sets USD/ CNY reference rate for today at 6.3972 (vs. yesterday at 6.3956)

  
Analysis, Forex

The People’s Bank of China set the onshore yuan (CNY) reference rate for the trading session ahead.

    • USD/CNY is permitted to trade plus or minus 2% from this daily reference rate.
    • CNH is the offshore yuan. USD/CNH has no restrictions on its trading range.

 

  • The previous close was 6.3865
  • Reuters estimate from their survey was 6.3971, Bloomberg 6.3967  …. (A rate that’s significantly stronger or weaker than expected is typically considered a signal from the PBOC).

Here’s a restrained view on the Chinese yuan – more two-way trading, not a sharp downtrend

  
Analysis, Forex

HSBC with a restrained view for RMB, looking for its appreciation to slow and prompt some range trading, not a sharp reversal.

  • We believe the recent comments and countercyclical measures out of China … suggest that, while there is no line in the sand, there is still a policy preference for basic stability of the RMB exchange rate.
  • We do not believe the recent downward momentum is the beginning of a long-term RMB appreciation trend. Cyclical indicators are pointing to a likely slowdown of GDP growth and smaller yield advantage for China in 2H21. We expect these cyclical developments to see net FX flows to China moderating in 2H21.
  • Broad USD weakness may be tested, if the Federal Reserve’s tapering debate picks up later in the year and some of the generous USD liquidity conditions could subside later this year. Our economists expect an official tapering announcement at the end of the year and implementation in 2022.
  • We think that China’s broad FX framework has not changed, namely two-way capital account liberalisation is maintained with the aim of achieving a balanced flow. Our base case sees USD/RMB exhibiting more two-way movement and then rise slightly later this year, when China’s outbound investment liberalisation accelerates, likely in 2H21.
(I bolded those Fed comments from HSBC that were part of the yuan note).
Weekly offshore yuan (USD/CNH) candles showing the appreciation trend for yuan  since the middle of last year.
HSBC RMB usd.cnh yuan

CFTC commitments of traders: EUR longs increased. CAD longs increase

  
Analysis, Forex

Weekly futures forex positioning data from the CFTC

  • EUR long 109K vs 104K long last week. Longs increased by 5K
  • GBP long 24K vs 31K long last week. Longs trimmed by 7K
  • JPY short 47K vs 50K short last week. Shorts trimmed by 3K
  • CHF short 0K vs 1K short last week. Shorts trimmed by 1K
  • AUD short 2K vs 1K short last week. Shorts increased by 1K
  • NZD long 6K vs 8K long last week. Shorts trimmed by 2K
  • CAD long 49K vs 45K long last week. Longs increased by 4K

Highlights:

  • EUR longs remain the biggest position and moved further away from the 100K level with a 5K increase
  • CAD longs at 49K is the next largest long position
  • JPY is the only meaningful short position at -47K
  • GBP longs were trimmed as the pair approaches the midpoint of the trading range since 2014 near 1.4300.

US dollar moves to new lows against all the major currencies. Some technical levels are being tested/broken

  
Analysis, Forex

USD making new lows

The USD is making new lows cancel the major currencies. The GBPUSD is now up 90 pips on the day. The AUDUSD and NZDUSD are also running to the upside (lower USD). The USDJPY is down -80 pips (lower dollar too).
EURUSD. The EURUSD has extended briefly above the 50% retracement 1.21786 to a new high of 1.2182.  The 100 hour moving averages at 1.21905 and the 200 hour moving averages at 1.21995.  They would be the next target on further upside momentum.
GBPUSD. THe GBPUSD is up testing the key 1.4200 level. Remember the high price yesterday peaked at 1.4203 but only briefly as traders lined up against the level.  It would take a move above the 1.4200 level to give the pair a more bullish bias with 1.42193 as the next upside target (highs from May 18 and May 27).
USDJPY. The USDJPY is dipping below the 200 hour moving average now at 109.542. The low price just reached 109.48.  The 100 hour moving averages at 109.74.  Stay below the MAs keep sellers more control.
USDCHF. The USDCHF is also trading back below its 200 hour moving average at 0.8986. Earlier, the 100 hour moving average was broken at 0.89976. Like the USDJPY, stay below the moving averages and the sellers remain more control.
USDCAD: The USDCAD is stock right around its 100 and 200 hour moving averages both near 1.2075 as traders await the next shove.   Crude oil is so far staying below the key $70 level. The high price reached $69.76. The current price trades at $69.50.
AUDUSD: The AUDUSD as a just moved back above its 100 and 200 hour moving averages. The 100 hour moving average comes in at 0.7723. The 200 hour moving average comes in a 0.7732. The high price just reached 0.7741.  PS the 100 day moving averages is also at 0.7724 – just above the 100 hour MA. That level is key support now.  Stay below is more bullish.

NZDUSD: The NZDUSD has moved back above its 100 day moving average at 0.7178 (now risk for longs).  Stay above is more bullish. The high has just reached 72086 which is near the swing low from Wednesday’s trade and a swing low from yesterday before breaking to the downside.  Get above that level and traders will be eyeing the 50% retracement of the move down since last week’s high at 0.72203. The 100 hour moving average comes in at 0.72235 and makes that area another key upside target.

The NASDAQ continues to push higher and is currently up 164 points or 1.21% at 13778.31. It’s high price did extend up to 13789.40.
The S&P index is up 26 points or 0.62% at 4218.89. The all-time high price for the S&P is up at 4238.04.
The Dow industrial average is up 94.81 points or 0.28% at 34673. That index is lagging as flows head into the more interest rate sensitive NASDAQ index.
The US 10 year yield is now down -5 basis points at 1.573%.
Gold prices are up $21 or 1.14% at $1892.17. That is just off it’s high price of $1892.30

US jobs report to prove to be litmus test for the dollar

  
Analysis, Forex

Can the dollar build on its gains from yesterday?

USD
There is a good argument going into the non-farm payrolls release later that the dollar has built up expectations of a strong report, in which the threshold for further gains may be even higher than before we got the ADP and jobless claims yesterday.
One thing to note is that the ADP figures have not been an accurate indicator of what to expect with the NFP headline so there is that to consider going into the release later.
For now, the dollar is in good standing but will the gains from yesterday prove to be fleeting? A miss on the headline and softer details may yet spark such a reaction but technically, the greenback is at least safe for now.
EUR/USD is keeping under 1.2200 and GBP/USD is backing away from the 1.4200 level while USD/JPY is holding above 110.00 as well. The near-term charts all point to dollar buyers holding control so sellers have much work to do to gather back momentum.
That said, don’t be surprised if there is a two-pronged reaction to the release later. The kneejerk reaction will depend on the headline but what comes after depends on how the market digests the data in full.
A miss and softer details is likely to see yields pull lower alongside the dollar but there is an argument that such a move may be temporary.
The dollar could have already met a short-term bottom this week as the PBOC has also chosen to rein in yuan gains and also the technical picture is much improved.
The fact that the dollar didn’t break lower against key major currencies could also allude to the selling seeing some exhaustion, so there is some room to correct.
Meanwhile, a strong report later may be more straightforward but is it already baked into expectations from yesterday’s move? Perhaps, but I reckon the market may still have second thoughts in the run up to the FOMC meeting in two weeks’ time.

Dollar a touch on the softer side for now

  
Analysis, Forex

Dollar keeps mildly lower across the board to start the session

EUR/USD is trading near session highs at 1.2240 as buyers start to look back towards the May highs near 1.2266 in hopes for a stronger breakout:
EUR/USD
Adding to that is GBP/USD also keeping close to the 24 February high @ 1.4241 following the daily close above the 1.4200 level yesterday:
GBP/USD
Elsewhere, AUD/USD is back up to 0.7760 from 0.7740 following the RBA decision earlier while USD/CAD is also seen slipping to 1.2035 from 1.2050-60 levels earlier in the day.

 

The technicals are what is important here in my view and the ones in EUR/USD and GBP/USD are worth taking note in case it exacerbates the dollar’s vulnerability after the decline seen yesterday to start the week.
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