China’s central bank rocked global markets this week as it initiated devaluation of the Yuan, saying it would begin setting the daily rate based in part on the prior day’s trading. In a press conference on Thursday, PBOC discussed its recent policy moves and Deputy Governor Yi Gang said “adjustment is almost complete”. He further said the possibility of a 10 percent devaluation was “nonsense”, amidst rumors of some government figures pushing for a bigger depreciation. The PBOC started Yuan devaluation on Tuesday by 1.9 percent, 1.6 percent on Wednesday, and finally 1.1 percent on Thursday. Despite the devaluation, PBOC also intervened to manage currency volatility, keeping the market in check.
China’s New Loans surged to CNY1.480 billion in July. This is more than double the median estimate and the third straight monthly increase. M2 Money Supply grew 13.3 percent. Industrial Production and Retail Sales came in at 6 percent and 10.5 percent, respectively.
Japan’s Core Machinery Orders fell 7.9 percent in June, its lowest reading since May 2014.
German ZEW Economic Sentiment slipped to 25.0 from July’s 29.7. This is its fifth consecutive monthly decline. In contrast, the Eurozone German ZEW Economic Sentiment improved to 47.6.
In Greece, the parliament on Friday voted in favor of implementing the measures for the third bailout program. 222 Greek MPs voted Yes and 64 voted No, with a growing number of SYRIZA lawmakers opposing the deal, the third bailout in the last five years. Euro finance ministers will approve lending 85.5 billion Euros in the next three years to Greece for stability support.
Gold recovered this week as it traded within a $37 trading range and pushed through $1,100. An initial bounce toward $1,150 remains possible amidst a bearish backdrop while price is below $1,250.
Oil completed its ninth straight weekly bearish close this week as more sellers joined. The $40 level is now on target, and a move toward the $30-$35 zone is now an increased possibility. Traders should avoid buying any dip.
EURUSD recovered this week further after price failed to make a new weekly low. The pair was able to move past 1.1200 but topside selling made it close the week much lower. The goal of buyers for the next few weeks is to sustain momentum and target 1.1400 again.
GBPUSD came close to taking out previous week’s low, but in the end it just formed a bullish weekly inside bar. This was a positive result, which could pave the way for a breakout toward 1.5900 in the coming week or so. This is a big possibility unless support around 1.5400 will be cleared.
The 125 level in USDJPY has been reached but the last three weekly closes has been far from ideal. Most moves towards that level has been thwarted by sellers easily, and this could become a bigger concern for bulls starting this coming week. Sellers could aim for a break of 124 this week.
The Week Ahead
This week will be less active, overall, compared to previous weeks. However, activity would be more evenly distributed.
Monday will offer Japan’s Prelim GDP; Switzerland’s Retail Sales; Canada’s Foreign Securities Purchases; US Empire State Manufacturing Index;
Tuesday will have RBA’s Monetary Policy Meeting Minutes; UK CPI, RPI, PPI Output and HPI; US Building Permits and Housing Starts.
Wednesday will be unusually compact with New Zealand’s PPI Input and PPI Output; Japan’s Trade Balance; US CPI and FOMC Meeting Minutes.
Thursday will have Bank of Japan’s Monetary Policy Statement and press conference; Switzerland’s Trade Balance; UK Retail Sales; Canada’s Wholesale Sales; US Jobless Claims, Existing Home Sales, and Philly Fed Manufacturing Index.
Friday will remain active with China’s Caixin Flash Manufacturing PMI; Flash Manufacturing PMI and Flash Services PMI from France, Germany, and the Eurozone; UK Public Sector Net Borrowing; Canada’s CPI and Retail Sales; and US Flash Manufacturing PMI.