Forex - China Flows: Yuan held onto losses on renewed trade worries

 03:55 (GMT) 04 Dec

  [Forex Flows]

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China Flows: Yuan held onto losses on renewed trade worries (0101-PXVM-C01)

Chinese yuan held onto losses after latest comments by Trump appeared to dampen hopes of a US-China trade deal before end of the year. Revived trade war fears continued to weigh on emerging market currencies on Wednesday. USD/CNH traded tightly around 7.0700 after Asian session started on Wednesday. 7.1000 level is now within reach, and next strong resistance is seen at 7.1124.
PBoC fixed mid-point at 7.0382 vs. previous close of 7.0610. USD/CNY gapped higher to open at 7.0750 and traded around opening levels thereafter. Onshore yuan continued to be under pressure from renewed trade war fears, eyes on resistance at 7.1000 for USD/CNY. 1Y NDFs traded tightly around 7.1400 after a surge yesterday.

Forex - Asia Open - Overnight Highlights

 23:41 (GMT) 03 Dec

 [Forex Highlights]

Asia Overnight Highlights - 04 Dec 2019


FX Highlights:

The Bloomberg dollar spot index was lower on Tuesday after the comment from President Trump in a press conference at the NATO Summit, saying that he had no deadline on a trade deal with China and it might be better to wait until after the November 2020 election. This triggered a risk off reaction in markets which had been hoping for a phase one deal by the end of the year or at least early in 2020.

USD/JPY lost around 15 pips on the statement, but as US equity and UST yield losses built, a low below 108.50 was seen. Comments from Commerce Secretary Ross suggesting tariffs on China might be hiked on December 15 added to market concerns.

EUR/USD fell around 20 pips down to 1.1065 on Trump's comments before picking up as UST yields weighed on the USD, though 1.10 still contains the upside. Trump suggested he could use trade as a weapon against countries not meeting their NATO commitments.

GBP was a little firmer against the EUR, benefitting from a new Kantar poll showing an increase in the Conservative poll lead to 12%. The UK construction PMI stayed very weak, but was slightly above market expectations. GBP/USD saw highs above 1.30.

AUD/USD fell back to opening levels at 0.6840 after extending the Asian session gains to 0.6860 in the European morning. USD/CAD also ended little changed.

Data/Events Highlights:

- Trump said no deadline for deal with China, could be better to wait until after election

- VIX index: 15.96 (+7.04%)

- Gold Spot: $1,476.79/oz (-0.06%)

- ICE Brent front contract: $60.82 ($-0.10)

- Nymex WTI front contract: $56.41 (+$0.31)

- Reuters/Jefferies Commodities Index: 177.59 (+0.26%)

- 10y UST: 1.716% (-10bp) (Asia morning)

- DJI: 27,502.81 (-1.01%); S&P: 3,093.20 (-0.66%); Nasdaq: 8,520.64 (-0.55%)

Data/Events Ahead:

We expect a 140k Nov increase in ADP's estimate of private sector employment growth. . Nov ISM non-manufacturing data is also due and we expect slippage to 54.0 from 54.7.

The Bank of Canada meets today. A rate cut looks unlikely, but recent data will be closely watched, Q3 GDP in particular.

Eurozone Services and Composite PMIs are due for final readings, whose flash readings were 51.5 (52.2 in October) and 50.3 (50.6 in October) respectively.


FX Highlights:

A mixed day for Asian currencies as dollar held onto its losses. Trump's latest tariffs against Brazil and Argentina rattled market nerves again on Tuesday, and further decline in risk sentiment was seen overnight with President Trump saying he's not running a deadline for the China deal and it could be postponed to after the elections. CNH (-0.37%) led the losses as a result, followed by KRW (-0.33%) and CNY (-0.31%). Philippines peso trimmed some earlier losses, rebounded by 0.25% against USD. SGD (+0.12%), MYR (+0.10%) and IDR (+0.07%) were also in gains.

USD/CNH extended the gains on Tuesday to 7.0800+ levels in NY from 7.0400-levels seen in the Asian session and settled around 7.0700 into the NY close after concerns regarding the phase 1 US/China trade deal rose again. Break above 7.0500 has exposed the 7.1000 handle once again. Onshore spot was seen printing over 1-month highs of 7.0650 on Tuesday amid risks to China tariffs after President Trump imposed tariffs on Brazil and Argentina. Upside remains vulnerable, eyes on 7.1000 big figure. 1Y NDFs were boosted to highs of 7.1585 from sub-7.1200 levels seen earlier.

USD/SGD continued to trade with a bearish bias on Tuesday despite fresh tariff concerns, and pair slid to sub-1.3650 levels in NY as the USD weakened. Pair may eye the 1.3635 support. If broken, we will turn our attention to the 1.3596 support next.

USD/IDR 1M NDFs traded choppily around 14170 on Tuesday, unable to find a firm bias. Onshore spot remained close to Monday's highs of 14132 and re-printed it in early trading. Pair was however possibly halted by authorities. Risk aversion was also higher due to a blast report at Indonesia's national monument park in Jakarta. Pair however retreated to sub-14120 levels into the close. We believe the pair remains fragile amid trade risks and a widening budget deficit at home. However, gains towards 14150 are still likely to be capped.

USD/INR 1M NDFs traded with a bid tone back to the 72 handle from lows of 71.710 earlier on Tuesday. Onshore spot traded in consolidation around 71.600 as the RBI's 3-day meeting began with the decision due on Thursday. Pair however rose back to 71.800 levels into the close, and is likely to face continued upside pressures amid domestic and external volatilities, and the 72 level may be eyed again.

Data/Events Highlights:

Singapore's November manufacturing PMI saw some gains to 49.8 in November from 49.6 in October, but still remained in contraction.

Data/Events Ahead:

Malaysia's October trade data is scheduled in Asia today, and we expect another contraction in exports and imports.


00:00 GMT / 08:00 SGT - NZ: ANZ Commodity Price (Nov) [Prev: 1.2]

00:30 GMT / 08:30 SGT - JP: Services PMI (Nov F) [Prev: 50.4]

00:30 GMT / 08:30 SGT - JP: Composite PMI (Nov F) [Prev: 49.9]

00:30 GMT / 08:30 SGT - AU: GDP (Q3) 4cast: 1.8% y/y [Mkt: 1.7, Prev: 1.4]

04:00 GMT / 12:00 SGT - MY: Exports (Oct) 4cast: -13.5% y/y [Mkt: -12.5, Prev: -6.8]

04:00 GMT / 12:00 SGT - MY: Imports (Oct) 4cast: -8% y/y [Mkt: -9, Prev: 2.4]

04:00 GMT / 12:00 SGT - MY: Trade Balance (Oct) 4cast: 10.15MYR bn [Mkt: 11.9, Prev: 8.34]

05:00 GMT / 13:00 SGT - IN: Composite PMI (Nov) [Prev: 49.6]

05:00 GMT / 13:00 SGT - IN: Services PMI (Nov) [Prev: 49.2]

09:00 GMT / 17:00 SGT - EU: Services PMI (Nov Final) [Mkt: 51.5, Prev: 51.5]

09:00 GMT / 17:00 SGT - EU: Composite PMI (Nov Final) [Mkt: 50.3, Prev: 50.3]

09:30 GMT / 17:30 SGT - UK: CIPS / Markit Services PMI (Nov Final) [Mkt: 48.6, Prev: 48.6]

09:30 GMT / 17:30 SGT - UK: CIPS/Markit Composite PMI (Nov Final) [Mkt: 48.5, Prev: 48.5]

13:15 GMT / 21:15 SGT - US: ADP Employment Survey (Nov) 4cast: 140k [Mkt: 140, Prev: 125]

14:45 GMT / 22:45 SGT - US: Markit Services PMI (Nov F) [Mkt: 51.6, Prev: 51.6]

15:00 GMT / 23:00 SGT - US: ISM Non-Manufacturing (Nov) 4cast: 54 [Mkt: 54.5, Prev: 54.7]

15:00 GMT / 23:00 SGT - CA: BoC Rate (Dec 4) 4cast: 1.75% [Mkt: 1.75, Prev: 1.75]

23:00 GMT / 07:00 SGT - KR: Current Account Balance (Oct) [Prev: 7.4772]


- No Key Events Scheduled

Forex - Asia Close Highlights

 08:51 (GMT) 29 Nov

 [Forex Highlights]

29 Nov 2019

Charu Chanana, Jiaxin Lu, Defa Zhao

Regional Backdrop:

Majority of the Asian currencies weakened against the dollar during the week as the dollar strengthened amid a strong Q3's GDP showing. Initial trade optimism was pared towards the end of the week, after Trump's signed the Bill in support of the Hong Kong protestors, risking possible retaliation from China. JPY was the biggest loser, down 0.80% against the dollar. Other currencies saw modest losses against the dollar as well: KRW (-0.21%), SGD (-0.19%), INR (-0.17%), THB (-0.15%), IDR (-0.15%) and MYR (-0.08%). CNH and CNY were the only winners, up 0.18% and 0.16% respectively against the greenback. TWD, PHP and HKD were relatively stable.

USD/CNH continued to be driven by trade headlines. Trade optimism at the start of the week spurred modest gains in offshore yuan, USD/CNH slipped to a low of 7.0091 on Tuesday. Market sentiment was subsequently dampened by the decision of US President Trump to sign Hong Kong Human Rights and Democracy Act, and USD/CNH edged up to 7.0350 at last look.

USD/CNY was largely range bound during the week. Pair traded mostly between 7.0217 -7.0358 amid trade jitters. 1Y NDFs tested the low of 7.0855 on Wednesday, and traded higher to 7.1050 thereafter.

USD/SGD traded with an upside bias across the week amid strength in the dollar. Pair extended its gains from around 1.3640 at the beginning of the week to 1.3671 on Friday, a fresh high since mid-October. Dollar strengthened after U.S's Q3 GDP beat expectations. Risk aversion rose as well after Trump has signed the human rights Bill in support for the Hong Kong protestors. Meanwhile, Singapore's October CPI remained weak and slipped further to 0.4% y/y from 0.5% y/y in September. However, Singapore's October industrial production beat market expectations and rose to 4.0% y/y from a revised 0.7% y/y in September.

USD/IDR onshore spot started the week lower amid U.S./China trade deal optimism, and intraweek lows of 14078 were printed on Tuesday. Risk aversion however picked up later in the week following President Trump's signing of the HK bill which may likely instigate China and spoil the trade talks. Pair was however capped at 14100 initially, possibly stalled by authorities, but broke above on Friday to test the 14115 resistance as we had expected.

USD/INR onshore spot traded in v-shaped pattern on Tuesday, seeing a bearish bias first to slip to 3-week lows of 71.295 amid expectations of reforms from the Modi government following announcements of divestments. U.S/China trade talks however still kept investors jittery and the slowdown expected in Q3 GDP data on Friday boosted risk aversion and brought the pair back to 71.800 levels at last look on Friday.

Market Psychology

USD/CNH - Quiet markets still mean no change to our view that the pair will remain within 7.0000-7.1000 near-term. For USD/CNY, Further gains is likely to be capped, the pair may target support at 7.0197.

USD/SGD - Eyes will be on the 1.3700 big figure as dollar continues to strength. If broken, we will turn our attention to the 1.3721 resistance.

USD/IDR - Gains above 14115 will be tough unless trade talks see a real deterioration, in which case 14150 is likely to cap.

USD/INR - Pair is likely to face continued upside pressures amid domestic and external volatilities, and the 72 level may be eyed again.

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