FX: The dollar index lost 0.1% amid stabilization of the markets on Thursday morning after rising since Tuesday. #AUDUSD reversed the decline by 1.6%, #NZDUSD returned only 1/3 of yesterday losses. #EURUSD, #GBPUSD, #USDJPY the fourth day near 1.12, 1.215 and 106, respectively. #USDCNH fluctuates around 7.06

Stocks: World indices are adding after positive data on China's trade balance and the stabilization of the renminbi. #SPX add 0.3%

Commodities: Crude oil and gold stabilized after sharp surges the day before. #Brent is recovering from a decline to $ 55.70, #Gold retreat below $1,500, after a peak at $ 1,510

Crypto: #Bitcoin's fight for $12,000 continues. Top 10 altcoins mainly in the green zone.

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Thursday
08:00 🇪🇺 [!!] ECB Economic Bulletin
12:30 🇺🇸 [!!] US Unemployment Claims
23:50 🇯🇵 [!!] Japan Preliminary GDP estimate

Friday
01:30 🇨🇳 [!!!] China Consumer Price Index

Detailed economic calendar

Suppressed inflation due to limited consumer demand leads to expectations of further stimulus through bailout programmes, monetary policy easing and attempts to weaken the exchange rate. And this is terrible news for the renminbi, which could come under even greater pressure.

Earlier in the week, the #USDCNH stopped at 7.0, pulling back to 6.933 at the time of writing. Likely, we see a tactical break by the bulls near the round level, coinciding with the dollar's pullback in forex.

Potentially, USDCNH could move up to the 7.15 area, repeating the highs of 2019 and 2020, which would help strengthen export competitiveness from China, bringing GDP growth closer to the target.

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Traditionally, market participants pay more attention to production dynamics as it sheds light on global trends and allows for assessing export and import potential, affecting the renminbi exchange rate. Moreover, production often acts as a leading indicator of economic trends.

In this context, it is unsurprising that the renminbi fell, and the #USDCNH rose on Monday. Last week it broke above its 200-day MA at 6.95 but did not dare to break through. At the same time, the pullback level to 61.8% of the November and February declines is also in this area.

A decisive break of this long-term trend indicator is likely to be postponed by the outcome of the Fed meeting. A move lower in the USDCNH could be the prologue to a move lower to 6.30 in the coming months. A sharp move higher would reclassify the pair's rise in recent weeks from a correction to a new advance and could lead to a significant increase in the pair's volatility.


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The weaker-than-expected data put pressure on the renminbi. The #USDCNH briefly touched 6.978, a high of 6.978 this morning, and is now approaching a test of the psychologically important 7.0 level, which the pair has failed to break since last December. A break above this level could be an important milestone for the forex market, adding to the general pressure on the renminbi and risk assets.

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After this report, it is unsurprising that the People's Bank of China had urged state banks to lower interest rates to stimulate domestic demand earlier in the day. Given the shallow inflation (starkly contrasting to most of the world), there is still plenty of room for stimulus.

A separate trend is the renminbi, which has been retreating methodically against the dollar for the last eight weeks, roughly following the trend of last year and leaving the renminbi 7% below levels from a year ago.

If the authorities maintain the gradual weakening of their currency, this could support the competitiveness of Chinese exports. However, if no improvement in export dynamics is visible, further pressure on the renminbi should be expected.

If the PBC tries to maintain a 7% weakening of the renminbi against the level of a year earlier, the #USDCNH could rise to 7.8 in October.

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China's weakness is bad news for markets until it triggers the Government stimulus measures. But we are still hearing nothing new about them, so markets remain nervous.

Moreover, today's news adds to the pressure on the yuan. In a classic case of weak inflation, the central bank tends to cut interest rates, sending capital in search of higher yields in overseas debt markets. Alternatively, the central bank may try to stimulate the economy through a weaker yuan, thereby increasing export competitiveness and imported inflation.

In other words, #USDCNH is unlikely to have peaked late last month. It will likely continue its uptrend to levels above 7.30 unless there is a significant change in the economic data.

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Meanwhile, the #USDCNH pair has been moving around 7.1450 for more than a week.

Technically, the yuan has found support on the decline towards the 200-day moving average and accumulated oversold on the RSI on the daily timeframes.

This is roughly the same area where the yuan was completing its corrective recovery in July. Therefore, it would not be surprising to see USDCNH rise in the coming days.

Fundamentally, selling the yuan against the dollar may also make sense due to the weakness in the economy. Managed RMB weakness may be in the Politburo’s interest as a measure to support exports.

In addition, China’s price growth rate is close to zero, so the authorities are not afraid of fuelling inflation through a weaker currency.

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#EconomicReview

▫️ Chinese CPI rose to 0.5% y/y, beating expectations;

▫️ PPI remained at -0.8% but maintained an upward trend.

▫️ #USDCNH has become more sensitive to carry trade fluctuations than the macroeconomy.

Read more

#Market Review

▫️ In the FX market, safe havens have returned to early August extremes;

▫️ #USDJPY is back near 142, forming a death cross;

▫️ #USDCHF was in uncomfortable territory for the NBS, forcing further rate cuts;

▫️ #USDCNH has moved into the safe haven category.