- PBOC sets USD/CNY mid-point sharply higher at 6.2298, +1136 pips.
- PBOC devalued the Yuan by nearly 2%; said move is a one-time fix.
- PBOC introduces new fixing system based on closing quotes.
- Gold up and oil down after PBOC devaluation news.
- EUR/CNH short covering boosts EUR/USD to 1.1050.
- EUR/CNH calculated high of 7.0500 and bid into NY.
- China, REER deviates from consensus expectations, firm CNY stance abandoned.
- Germany July weekly sale price index -0.5% y/y vs -0.5% previous.
- Germany August ZEW Economic Sentiment 25.0 vs 29.7 previous, 32.0 expected.
- Germany August ZEW Current/Conditions 65.7 vs 63.9 previous, 64.3 expected.
- Fewer bet on weaker JPY even as Fed gears up for rate increase.
- UK July BRC like-for-like retail sales +1.2% y/y, +1.0% eyed, June +1.8%.
- Greek markets surge after Athens clinches bailout deal, ATG up 1.2%.
- Greece and lenders agree on primary budget targets.
- (0600 ET/1000 GMT) NFIB Small Business Optimism Index (July) (previous 94.1).
- (0830 ET/1230 GMT) Productivity (Q2) (consensus +1.6% q/q AR, previous -3.1% q/q AR).
- (0830 ET/1230 GMT) Unit Labour Costs (Q2) (consensus +0.1% q/q AR, previous +6.7% q/q AR).
- (0855 ET/1255 GMT) Redbook Same Store Sales Index (August 8 week).
- (1000 ET/1400 GMT) Wholesale Inventories (June) (consensus +0.4% m/m, previous +0.8% m/m).
- (1000 ET/1400 GMT) Wholesale Sales (June) (consensus +0.4% m/m, previous +0.3% m/m).
- (1000 ET/1400 GMT) NAR Housing Affordability Index (June) (previous 159.7).
Key Events Ahead
- (1145 ET/1545 GMT) Fed Trade ops 15-yr F.Mae/Fr.Mac max $475mln.
- (1430 ET/1830 GMT) Fed Trade ops 30-yr Ginnie Mae max $900mln.
FX Recap
EUR/USD is supported above 1.1000 levels and currently trading at 1.1020 levels. It has made intraday high at 1.1050 and low at 1.0960 levels. The single currency was stronger on Tuesday as investors' appetite returned after the Greek deal with its creditors. ZEW economic sentiment in Germany for August dropped from 29.7 to 25.0, while the current situation gauge improved to 65.7 from 63.9 previously. High volatility was observed on Tuesday as the pair was seen lower during the early morning session, but as London opened for trading, the euro jumped higher to fresh daily highs. It was seen around $1.1050, while lows of the day were at $1.0960. Initial support is seen around at 1.0789 and resistance at 1.1195 levels.
USD/JPY is supported above 124.00 levels and posted a high of 125.07 levels. It has made intraday low at 124.52 and currently trading at 124.82 levels. The dollar-yen pair struggles to regain lost ground, although remains better bid as the US dollar poses a solid recovery from the Fed Fischer's and Lockhart's less hawkish comments-led drop. Moreover, the latest Yuan depreciation by the PBOC is widely expected to pressure USD/Asia currencies up, which also lent a helping hand to USD/JPY, driving the major to highs just shy of 125 handle earlier this session. Looking ahead, markets now shift focus to a set of US macro data lined up release later today ahead of BOJ monetary policy minutes and Japan's industrial production data due tomorrow. Initial resistance is seen at 125.68 and support is seen at 120.63 levels.
GBP/USD is supported above $1.5500 levels. It made an intraday high at 1.5617 and low at 1.5556 levels. Pair is currently trading at 1.5586 levels. Sterling rose 1.9 percent against the Chinese yuan on Tuesday, to hit a 10-month high after PBOC devalued the currency to make exports more competitive. The pound rose to 9.8690, its highest since October. Against the dollar, sterling was up 0.1 percent at $1.5606, while the euro was slightly higher at 70.75 pence. Pair failed to benefit from re-emergence of risk-on environment backed by Greece bailout deal news and trades flat awaiting fresh cues from the US session ahead. Moreover, a muted greenback against its major competitors as markets continue to assess Fed officials' comments from Monday, keeping the gains in the US currency capped. The DXY, the virtual gauge of greenback's relative strength, now trades modestly flat at 97.27, having found good support at 97 levels. Markets now remain cautious and await not much significant US macro releases including non-farm productivity and unit labour costs data for further momentum on the pair. UK labour data is the major event scheduled for Wednesday. Initial support is seen at 1.5413 and resistance is seen around 1.5734 levels.
NZDUSD is supported below 0.6600 levels and trading at 0.6548 levels and made intraday low at 0.6538 and high at 0.6633 levels. The New Zealand dollar halted its recovery and dropped sharply versus its US counterpart, knocking-off NZD/USD to fresh three-day lows on 0.65 handle, as the Kiwi was badly hit by latest currency moves by PBOC while heavy losses in the Aussie also dragged its OZ neighbour lower. Pair snapped its minor recovery seen in early moves and plunged nearly 100 pips in reaction to the shocking move by the People's Bank of China, allowing Yuan to depreciate almost 2% against the greenback. Initial support is seen at 0.6465 and resistance at 0.6789 levels.
AUD/USD is supported below 0.7400 levels and trading at 0.7316 levels. It has made intraday high at 0.7439 levels and low at 0.7305 levels. The unexpected decision on Tuesday by the People's Bank of China to lower the Renminbi rate by the most on record had a negative effect on antipodean currencies. China remains Australia's biggest trading partner. With the devaluation of the Chinese currency, Chinese companies will have less purchasing power to purchase products from Australia or New Zealand. Markets are also concerned, as they see a warning message in the latest PBOC move, suggesting that the Chinese economy continues to struggle to maintain its desired growth. Initial support is seen at 0.7225 and resistance at 0.7647 levels.
USDCNY is currently trading at 6.3105 levels. Pair made intraday high at 6.3280 levels and low at 6.2093. The Yuan suffered its biggest fall in over two decades on Tuesday, hitting a three-year low after the PBOC surprised markets by devaluing it by almost 2 pct. Spot Yuan tumbled around 2 percent to as low as 6.3360, the weakest since September 2012 and the biggest drop since the currency was officially devalued in 1994. The Yuan had been locked in an extremely narrow intraday range since March, varying only 0.3 percent. The PBOC has been under mounting pressure to further ease its policies and stimulate the economy after a raft of disappointing data released over the weekend pointed to slowing production and falling exports.
Equities Recap
Stocks fell in Asia and Europe as investors worried about the implications of the move to support China's slowing economyand exports.
The pan-European FTSEurofirst 300 index was down 0.5 percent, led lower by car makers and luxury goods companies, whose products just got more expensive for Chinese consumers. Britain's FTSE fell 0.1 pct, France's CAC slipped 0.2 pct and Germany's DAX dropped 0.5 pct in early deals.
Shares in Athens rose 1.6 percent. MSCI's broadest index of Asia-Pacific shares outside Japan gave up early gains and was last down 1.2 percent at its lowest since February 2014. Japan's Nikkei slipped 0.4 percent. The CSI300 index lost 0.4 percent and the Shanghai Composite closed flat.
Commodities Recap
Oil prices fell on Tuesday after China devalued its currency in its latest effort to prop up economic growth, making dollar-priced commodities more expensive and weighing on the oil demand outlook for the world's top energy consumer. Front-month Brent futures were down 10 cents at $50.31 a barrel at 0845 GMT, cutting short oil's biggest daily rally since late May the previous session. U.S. crude fell 25 cents to $44.71.
Gold rose more than one percent on Tuesday as the dollar cut gains and European stocks fell and investors assessed the impact of China's move to devalue its currency and prop up its economy. Spot prices rebounded to a three-week high of $1,119 before trading up 0.8 percent at $1,112.76 an ounce by 0915 GMT. U.S. gold for December delivery rose 0.8 percent to $1,112.20 an ounce.
Treasuries Recap
JGB prices ended the day narrowly mixed in relatively quiet trading, with super-long JGBs softer.
Super-long JGBs opened weaker, sending yields up by 2bp to 2.5bp from yesterday in thin trading, on the back of weaker German Bunds and US TSY bonds overnight. But super-long JGBs pared part of their earlier losses after the MoF published decent results of today's monthly JPY800bn 30-yr JGB auction at 03:45GMT (=12:45JT).
Germany's benchmark fell 2.7 basis points to 0.68 percent and U.S. 10-year yields dropped more than 4 basis points to 2.19 percent.
The deal on a third bailout for Greece also helped yields on lower-rated Spanish and Italian bonds drop 3 bps apiece while Greek two-year yields fell 4 percentage points to 15.25 percent, 10-year yields dropped about 70 basis points to roughly 10.50 percent.
UK Gilts opened 33 ticks higher than the settlement of 116.98, as predicted, as core markets received a lift from the China Yuan devaluation. Buyers have respected the 61.8% Fibo support from year lows and highs at 1.878%
New Zealand government bond yields were as much as 2.5 basis points higher. Australian government bond futures fell, with the three-year bond contract off 1 tick at 98.010. The 10- year contract was down 3.5 ticks to 97.1550 leading to a bearish steepening of the curve.
