A verbal intervention from the Chinese central bank forces the Dollar lower amid strong US manufacturing data and expectations for a hawkish Fed rhetoric in the FOMC minutes due tomorrow. The People's Bank of China commented that they don't plan to use the Yuan as a weapon in the trade spat between them and the US following the depreciation of the Chinese currency to its lowest level of the year this week. To be fair though, it is clear that the PBOC has allowed the Yuan to weaken in the past weeks when it rose to 6.7 Yuan per Dollar as a mechanism to offset the US-imposed tariffs that will take a toll on the domestic economy,
Nevertheless, PBOC's verbal intervention yesterday forced the domestic currency to rebound against the greenback leading the Dollar lower across the board. The stronger than expected Durable Goods and Factory Orders data did little to prevent the Dollar slide. Dollar/Yen dropped below 110.50 to end the uptrend seen since last week which now exposes the 109.80 area as the next target. With the US markets closed today for the Independence Day celebrations the Dollar might find no reasons to pick up pace again so the focus now shifts to the FOMC minutes due to be released tomorrow.
The spotlight today will be on the European and UK Services PMI releases that could help extend the moves higher in the Euro and the Pound respectively. The Single currency is trading close to the 1.17 highs following Dollar's retreat and the German and Eurozone Services PMI data today could extend this move above this short-term peak. Having said that, a break higher will face strong resistance as it enters the 1.1720-40 area while the potential of a Dollar recovery towards the end of the week in light of the FOMC and NFP events forces us to look only for intra-day gains.
The Pound is also at the top of our watchlist this morning ahead of the UK Services PMI release, a key measure of businesses' performance in Britain. Better than expected Manufacturing and Construction data earlier in the week points towards a positive reading today which will help the Pound clear the 1.32 barrier. The target to the upside stands around the 1.3280 area and given Dollar's current weakness this could quickly be achieved. The Brexit negotiations between PM May and her cabinet is the other catalyst for Cable so potential support from optimistic speculators could allow the Pound to hit this target over the next 48 hours.
Gold has finally rallied staging an impressive $20 recovery over the past 24 hours to drive prices to the $1,260 area benefiting from Dollar's retreat. The yellow metal is trading just below this area this morning but the key resistance stands around the $1,265 level and until this is broken we can't speak about a longer-term reversal for Gold. Oil on the other hand recovered to trade to $74.50 this morning but as mentioned yesterday the technicals continue to call for a correction so we need to keep our guard up until the end of the week.
Equities in Asia are trading with a clear bearish bias this morning following a downbeat session in the US. The Yuan is making headlines in Asia and PBOC's comments that they don't intend to allow the Chinese currency to weaken further are putting pressure on the regional markets. The European futures are pointing towards a marginally positive opening bell but with traders focused on the Chinese story and the US markets closed we should be in for a choppy trading session.
MARKET EVENTS TO WATCH
- Germany Services PMI - 11.55pm
- Eurozone Services PMI - 12pm
- UK Services PMI - 12.30pm
All times are GMT +4.