Chinese Yuan, USD/CNH, Market Sentiment, Metals, Technical Outlook – TALKING POINTS
- US stocks fall but a softer Dollar may induce some risk taking across APAC stock markets
- Europe’s energy crunch potentially claims another victim as German smelter mulls cuts
- USD/CNH eased after hitting a fresh 2022 high as bullish and bearish technical indicators clash
Wednesday’s Asia-Pacific Outlook
Wall Street traders sold US equities for a second day, although the pace of losses moderated. The selling sent the S&P 500 and Dow Jones Industrial Average 0.22% and 0.47% lower, respectively. A tension across markets ahead of this week’s Jackson Hole Economic Symposium has tempered risk taking. Federal Reserve Chair Jerome Powell will speak Friday and possibly stamp out Fed pivot bets that drove much of the recent risk-taking across equity markets.
Treasury yields increased through most of the curve, although the 2-year rate fell slightly. The US Dollar being sensitive to that 2-y yield weakened on the move. US new home sales fell in July for the sixth consecutive month. While US house prices remain higher on an annual basis, the rate has cooled recently amid higher borrowing costs. US market participants are eying durable goods order data due before the next opening bell.
Dutch European natural gas eased overnight, but remains near record high levels. That allowed the Euro to moderate, weighing on the US Dollar. A German aluminum smelter is considering suspending operations due to the surging energy prices across the continent, according to Bloomberg, citing Speira’s head of communication and marketing. If the company decides to shutter production, it could underpin prices by adding to Europe’s recent exits from the industry in Europe, which is already likely facing a structural change in its ability to domestically produce metals. Aluminum prices rose around 1.5%.
The Chinese Yuan fell to the weakest point since August 2020 versus the US Dollar overnight. The Yuan is being weighed down as China’s economic headwinds increase amid ongoing Covid lockdowns, property sector woes, and now, heatwave-induced factory shutdowns. The offshore currency is down more than 8% against the Greenback this year and looks primed to weaken further. The Chinese central government will likely need to up its support to the economy through fiscal and monetary measures.
USD/CNH Technical Outlook
USD/CNH surged to a fresh 2022 high before pulling back slightly. The former 2022 high from the May swing high at 6.8375 may provide support if prices continue to fall. The Relative Strength Index is showing a bearish divergence between this week’s high and the May swing high after RSI failed to break above the 70 overbought mark. A drop below the May high would put the 20-day Simple Moving Average in focus.
USD/CNH Daily Chart
Chart created with TradingView
— Written by Thomas Westwater, Analyst for DailyFX.com
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