After Days of Volatility – All Quiet on the FX Front

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Market Drivers August 8, 2019
Chinese Trade better
PBOC fixes USDCNY above 7.000
Nikkei 0.37% Dax 0.67%
UST 10Y 1.73%
Oil $52/bbl
Gold $1497/oz
BTCUSD $11900.

Europe and Asia:
CNY Trade

North America:
No Data

FX was very quiet in Asian and early London trade after several days of volatility caused by risk-off flows.

There was some flutter of activity when the PBOC sent the daily fix of USDCNY above 7.000 for the first time since 2008, but the price action calmed quickly and all the crosses has remained in tight ranges for now.

On the economic front, the only report of importance was the release of the Chinese trade data which showed that exports remain strong despite global trade tensions. Exports were up more than 10% even as Trump Administration imposed tariffs on a wide variety of goods. The data shows that Chinese exporters are adapting to the new market conditions mainly by lowering their profit margins in order to maintain volume.

It remains to be seen if this strategy can survive the second round of tariffs that Trump threatened to impose in September. Meanwhile, the news should encourage yen shorts as it shows global demand steady despite the incessant war of words from China and US this summer. Furthermore, if Trump suddenly pivots 180 degrees as he has done so many times in the past and reverses his decree on additional tariffs in September, market sentiment could shift wildly creating a serious short-covering rally in risk-off pairs and comm dollars who have suffered the most as a result of trade war skirmishes.

The North American calendar is barren today so unless the market sees fresh headlines or massive moves in equities FX is likely to remain contained for the rest of the day.

Boris Schlossberg
Managing Director

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