Forex - GOOD MORNING Latam! (FX HIGHLIGHTS BRL MXN ARS CLP COP PEN)...


 10:19 (GMT) 12 Aug

  [Forex Highlights]

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RECAP CURRENCIES, DATA AND EVENTS

Regional Backdrop:

Asian currencies weakened over the past 5 days but most of the damage was done on Monday. Many currencies have been partially recovering since Tuesday. Overall, underperformers include CNY (-1.54%), CNH (-1.38%), INR (-1.3%) and KRW (-1%). THB nonetheless gained 0.29% against the USD, while TWD was 0.05% up. China news dominated during the week and should continue to be a focus once again the following week.

Asia FX and News

+ China: Chinese Media Cites IMF Report in Yuan Manipulation Rebuttal.-BBG

+ China PBOC's Yuan Fixing Signals Determination to Keep Order.-BBG

+ Indonesia: Bank Indonesia Says There is Still Space for Policy Rate Cut. -BBG

+ USD/CNH: The first Monday of August saw a 10 big figure move in USD/CNH, after the PBOC allowed CNY fixing above 6.9000 for the first time during the 2018-19 U.S.-China trade war. Pair moved from 6.9700 handle to a high of 7.1114 before retreating. Pair then reached a weekly high of 7.1400 on concerns of PBOC policy. Since then, PBOC's fixings signalled at a compromise between following market movements and maintaining stability. This helped anchor USD/CNH to 7.0750 last. China trade figures were positive for exports but price numbers showed concerns on CPI and poor PPI weighing on manufacturing. With expectations stabilising, a break of firming resistance level of 7.0800 handle will likely test 7.1032. USD/CNY saw a huge gap higher on Monday, from 6.9400 handle to 7.0200. Pair reached a weekly high of 7.0652 during Wednesday's NY session. However, pair has stabilised within the 7.0000-7.0600 range since Monday. Pair last at 7.0498. Markets have priced chances of no trade deal and are now stabilising on China policy consistency. For USD/CNY, a move above 7.0500 big figure will next have markets testing 7.0670 resistance.

Europe FX and news

GOOD MORNING Latam! (FX HIGHLIGHTS BRL MXN ARS CLP COP PEN)... (0101-NKHF-C01)

+ The USD gained slightly through the European morning, initially benefitting from gains against the EUR, helped by a large EUR/GBP sell order which pushed EUR/USD around 35 pips lower, with GBP/USD rising more modestly. However, USD gains were largely reversed by the end of the morning as HK unrest triggered risk aversion, benefitting the JPY and CHF, and to a lesser extent the EUR, though the USD gained ground against commodity currencies.

+ No data of any significance through the morning. The HK concerns appear to have been triggered partly by the occupation of HK airport by protesters which has led to the airport being closed. There were also reports of a build-up of armed Chinese police near the border.

+ Weekend reports suggested the UK opposition Labour Party are getting ready to call a vote of no confidence in the Johnson government in early September, though this was widely expected and is not seen to have been the cause of the early GBP recovery this morning.

Bonds and equities

Risk off stemming from Hong Kong tensions weighs on equities pushing bond yields lower at the start of the week. US 10y yields are down 6bp at 1.68% while German 10y yields decline by 1.5bp to -0.595%. Eurozone bond yields are generally lower led by Italy with 10y BTPs falling by 4bp to 1.76% following Friday night's affirmation of Italy's BBB (Neg) credit rating by Fitch. Core and semi-core are on par with Germany while Spanish and Portuguese bonds outperform Greek 10y yields which rise by 2bp. UK Gilts are slightly lower as the British Pound bounced off recent lows, with 10y Gilt yields rising by 0.5bp to 0.485% as talks on the Irish border between the UK and Ireland are about to resume and UK MPs plan to force UK PM Johnson to ask for a Brexit deadline extension.

US Data

Today, Jul's budget data is due

EMGE Flows

GOOD MORNING Latam! (FX HIGHLIGHTS BRL MXN ARS CLP COP PEN)... (0101-NKHF-C03)

The ruble extended its losses on lower oil prices and worse global sentiment amid the ongoing U.S.-China trade war at the start of Monday's session, ignoring the sovereign rating upgrade to BBB from BBB- by Fitch late last Friday with the USD/RUB briefly rising to 65.57. But in the next few days, we still see the currency benefitting from the beginning of the monthly tax payment period on Thursday that will probably lead to bigger FX sales by exporters, with the USD/RUB nearing the 64.84 support level.

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The koruna appreciated a bit at the beginning of Monday's session, outperforming its CE3 peers with the EUR/CZK temporarily falling to 25.824. The currency was supported by data showing that CPI inflation ticked up to 2.9% y/y in July from 2.7% y/y in June, above the consensus call as well as the CNB's forecast of 2.7% y/y. We think that the koruna has scope for further gains in the next few sessions because of the potential indication of resumption in monetary tightening by some CNB board members, with the EUR/CZK possibly breaching the 25.772 support level.


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