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By This Measure, China’s Yuan Is Best-Placed Since 2012 Rally

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China’s yuan is flashing the strongest technical signal since 2012 for gains against the U.S. dollar.

The onshore currency’s 50-day moving average has fallen below its 200-day mean, completing the so-called golden cross pattern that some analysts interpret as a sign that a rally will continue. While such crossovers happen frequently, this is the first time in eight years that both moving averages are trending down, a phenomenon some market watchers say signals a true golden cross.

Looking for Carry Trade? Yuan Ranks Among the Best: China Today

The dollar is heading for a fifth month of losses. Meanwhile, China’s success in restarting the economy after the pandemic, the widening of its current-account surplus, its relative yields over dollar assets and foreign inflows are all supportive of further gains for the yuan.

In addition to the golden cross pattern, the currency has broken through a trend line that’s limited its gains since March 2019. The line has now become a support for the Chinese currency -- potentially limiting any losses.

Fiona Lim, a senior currency analyst at Malayan Banking Berhad in Singapore, predicts a stronger yuan and suggests investors look to the trend in the 100-day mean, now that the 50-day and 200-day averages have already completed a cross.

“A decisive break below could see USD/CNH trade lower towards 6.85 levels,” she wrote.

The onshore yuan was trading little changed at 6.9409 on Thursday, holding its gains since May at 3.4%. Its offshore counterpart was at 6.9372.

Look for China’s Yuan to Trade Around 7 a Dollar in 2H, UBS Says

While technicals point to further strengthening, the yuan remains vulnerable to an escalation in U.S.-China tensions. With a discussion imminent on the so-called phase one trade deal between the two nations, the next several days could be a testing time for the currency.

Speaking of EM: Chinese Yuan and Phase One Trade Risks (Podcast)

The yuan capped its last golden cross between the 50-day and 200-day averages in October 2012 when Federal Reserve stimulus stoked capital flows into China. The pattern was followed by an extended advance until January 2014, when a 5.9% rally ended.

Since then, the shorter average fell below the longer average four times -- in 2014, 2017, 2019 and earlier this year. But all of them had a rising 200-day mean, making them weaker signals.

There were also four crossovers between the 100-day and 200-day averages since 2012, but there hasn’t been one with both of them trending down.

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Forex - Dollar Weakens as Politicians Squabble and Inflation Rises

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 The dollar weakened in early European trade Thursday, amid fading hopes for additional economic stimulus while inflation figures surprised to the upside.

At 3 AM ET (0700 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.3% at 93.157. USD/JPY was down 0.2% at 106.72, GBP/USD rose 0.3% to 1.3066 and EUR/USD was up 0.4% at 1.1826.

Weighing on the greenback has been the inability of the U.S. lawmakers to come to any sort of consensus regarding the country’s latest Covid-19 stimulus package, a deal that many feel is necessary to keep the economic recovery on track.

U.S. President Donald Trump accused Democrats on Wednesday of not wanting to negotiate over the package, with Republican and Democratic negotiators trading barbs and blame as negotiations ended without a result for the fifth day.

 On Tuesday, Richmond Fed President Thomas Barkin stated that the economy could take another downturn if U.S. policymakers fail to provide more financial aid. 

He was backed up Wednesday by Federal Reserve Bank of Boston President Eric Rosengren, who said he "strongly" supported taking additional fiscal action to help businesses and households survive the crisis. But, added more spending should be combined with more robust efforts to contain the virus.

U.S. deaths caused by Covid-19 topped 166,000 as of Aug. 13, with confirmed cases rising by more than 4% in the past week, according to data collected by Johns Hopkins University.

Adding to the problems facing the dollar were the latest inflation figures, with strong numbers from both the consumer and producer sides.

"The 0.6% month-on-month increase in July core CPI was jaw dropping," Jefferies (NYSE:JEF) said in a note. "It was the largest sequential jump since January 1991. While this momentum in pricing is unlikely to be sustained, the strength was broad-based and cannot be ignored."

With the Federal Reserve already committed to keeping its benchmark rates at these very lows for some time, the pressure is building on U.S. real yields.

“Much discussed in financial markets this summer is the drop in U.S. real yields as the Fed keeps rates low, while U.S. inflation expectations are on the rise,” said Chris Turner at ING, in a research note to clients.

“Expect this macro-policy theme to play a major role in FX market pricing ahead of a possible Fed adoption of an average inflation target in September. This theme is a broad dollar negative.”


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Dollar’s Decline Not as Stunning After Adjusting For Inflation

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The dollar’s stunning decline last month, the most in a decade, suddenly looks a lot less consequential once you take into consideration the inflation-adjusted value of the greenback.

That’s the view of veteran strategist Marshall Gittler, who suggested investors should adjust for price levels, use a wider basket of trading peers than the closely-followed U.S. Dollar Index and remember how much the currency had previously risen, in order to put its move in proper context. While the gauge of the dollar fell 4.2% in July, the U.S. Fed Trade-Weighted Real Broad Dollar Index only weakened by 0.9%, according to data compiled by Bloomberg.

“Back in April, the recent peak, the dollar’s real value was the highest it’s been in nearly 18 years,” Gittler, head of investment research at BDSwiss Group, said in a note Friday, published by Nasdaq. “That was the extraordinary move, not the recent decline.”

The Federal Reserve index’s 3.6% drop since April is “far from being a catastrophe that needs explaining” and is in line with its historical long-term trading pattern, he said. By comparison, the Dollar Index is down 7.1% from its April peak.

Gittler joins other strategists, including those at JPMorgan Chase (NYSE:JPM) & Co., pushing back on the intensifying debate over the future of the dollar, including threats of a structural decline voiced by analysts at Goldman Sachs Group Inc 


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Pound US Dollar (GBP/USD) Exchange Rate Flat as UK Employment Tumbles

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Largest Fall in Employment Since 2009 leaves Pound Sterling US Dollar (GBP/USD) Exchange Rate Muted

The Pound Sterling US Dollar (GBP/USD) exchange rate remained flat on Tuesday morning. This left the pairing trading at around $1.3095 following the latest employment data.

The Pound struggled to make gains after this morning’s data showed the number of people in employment fell by 220,000 in Q2.he Office for National Statistics (ONS) noted this was the largest fall in employment since 2009. The coronavirus crisis took a huge toll on the labour market despite support from the government’s furlough scheme.

The unemployment rate held steady at 3.9%, although this largely reflected huge numbers of Brits giving up looking for work.

Separate data also showed that the number of staff on company payrolls fell by -730,000 since March. This suggests there will be a larger increase in the country’s unemployment rate.


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Dollar Down Amid Fresh Doubts Over U.S. Recovery

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The dollar was down on Friday morning, touching two-year lows and on its way to posting its biggest monthly decline in a decade as fresh doubts over the U.S economy’s recovery from the COVID-19 pandemic creep in.

These doubts have led investors to question the dollar’s strength. Data released on Thursday showed that the U.S. economy contracted by 32.9% in the second quarter and that 1.434 million unemployment claims were submitted in the week ending July 25.

On the political front, Republicans and Democrats are also no closer to reaching consensus on the latest stimulus measures, with only one more day left before some earlier measures expire on Friday.

Ever-rising numbers of COVID-19 cases also continue to pose a challenge to the U.S.’ economic recovery. The country reported almost 4.5 million cases as of July 31, according to Johns Hopkins University data, and continues to hold the dubious honor of recording the highest number of COVID-19 cases globally.

“At the root of the dollar’s weakness is the fact, which was highlighted by Fed Chairman (Jerome) Powell the other day, that U.S. coronavirus cases started to increase in mid-June, curbing consumption and sending the economy downhill,” Daisuke Uno, chief strategist at Sumitomo Mitsui (NYSE:SMFG) Bank, told Reuters.

Meanwhile, U.S. President Donald Trump added to the dollar’s woes on Thursday after he floated the idea of delaying the U.S. presidential elections, currently scheduled for November 3. But the proposal was immediately rejected by Congress, the sole governmental authority that could make such a change.

“The mere suggestion by Trump of a delay does play to concerns that the election result will be challenged in November (should Trump lose), and that, because of the likely larger than usual share of votes via mail in ballots due to the pandemic, we might not now (get) the result on election night itself,” Ray Attrill, Head of FX Strategy at National Australia Bank (OTC:NABZY), told Reuters.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies slipped 0.28% to 92.645 by 9:53 AM ET (2:53 AM GMT).

The USD/JPY pair was down 0.45% to 104.25.

The AUD/USD pair gained 0.34% to 0.7218 and the Dow Jones New Zealand (USD) pair was up 0.04% to 0.6701.

The USD/CNY pair slid 0.30% to 6.9870. The country’s National Bureau of Statistics said that the official manufacturing purchasing managers’ index (PMI) for July was 51.1, indicating expansion in factory output.

The GBP/USD pair gained 0.29% to 1.3131.

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Forex - Dollar Pushes Higher, For Now; ECB, Jobless Claims Eyed

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The U.S. dollar has recovered moderately in early European trade Thursday, reversing earlier losses, but the long-term prognosis for the greenback continues to look less healthy.

At 3:AM ET (0700 GMT), the ICE (NYSE:ICE) Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 96.135. EUR/USD dropped 0.1% to 1.1398, GBP/USD dropped 0.3% to 1.2544, and USD/JPY was flat at 106.92. 

Helping the dollar Thursday has been the continued rise of Covid-19 cases globally, as a flurry of localized outbreaks across the world pushes the overall number of infections to 13.5 million and the death toll to nearly 600,000 deaths, according to Johns Hopkins University data.

China reported a 3.2% growth in its second-quarter GDP year-on-year, a sharp bounce back from the first quarter’s 6.8% contraction, although the yuan weakened slightly as monthly data showed a surprising drop in retail sales that suggested ongoing weakness in consumer demand. 

“Global market trends are increasingly looking like a renewed relative rotation out of the stay-at-home winners (tech, USD) towards reflation trades (Dax, energy, EM FX) and not a global/US growth scare,” said analysts at Danske Bank, in a research note. 

“We continue to see EUR/USD as being part of this rotation,” Danske added. “With this in mind (and we have not even begun to price Brexit optimism) we have started to think we can overshoot our short-term 1M and 3M target at 1.15.”

The Dollar Index is expected to weaken about 2% to 94.1 by the second quarter of next year, according to an analyst survey compiled by Bloomberg. 

Additionally, Deutsche Bank’s Trade-Weighted Dollar Index has dropped more than 1% so far this month, Bloomberg reported, and is set to test the trendline in place since 2011, a break of which would be an important signal for dollar bears. 

Looking ahead, the European Central Bank meets later Thursday, but is unlikely to deliver another easing package so soon after June’s moves.

“We expect a repetition of recent comments from various governing council members, thereby striking a cautiously optimistic tone compared to the June projections

Important U.S. economic data are due later Thursday, with initial jobless claims set to a slowly improving employment situation, while analysts will be watching to see if May's big jump in retail sales can be repeated.


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EUR/USD Price Analysis: The 2020 high now looks closer

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  • EUR/USD corrects lower after recent tops around 1.1450.
  • A test of the YTD peak just below 1.15 stays on the cards.

After recording new 4-month tops around 1.1450 on Wednesday, EUR/USD is now shedding some ground and slips back below the 1.14 mark.

The ongoing downside is seen as corrective only, leaving the probability of a visit to yearly tops near 1.15 well on the table in the short-term horizon.

Furthermore, as long as the 200-day SMA, today at 1.1055, holds the downside, further gains in EUR/USD are likely.


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NZD/USD erases Wednesday's gains, trades below 0.6550

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  • NZD/USD is staying under bearish pressure following Wednesday's climb.
  • Upbeat GDP data from China failed to provide a boost to NZD.
  • US Dollar Index is staging a recovery ahead of key data.

The NZD/USD pair gained around 30 pips on Wednesday but struggled to preserve its bullish momentum on Thursday. As of writing, the pair was down 0.45% on the day at 0.6540.

Eyes on US data

Earlier in the day, the data from China showed that Industrial Production expanded by 4.8% on a yearly basis in June and the Gross Domestic Product expanded by 11.5% on a quarterly basis in the second quarter. However, annual Retail Sales in China contracted by 1.8% in June and didn't allow the China-proxy NZD to gather strength against its rivals.

Meanwhile, the souring market sentiment put additional weight on the risk-sensitive kiwi's shoulders and caused the bearish pressure to remain intact.

In the second half of the day, the weekly Initial Jobless Claims and Retail Sales data will be featured in the US economic docket. Ahead of these data, the US Dollar Index (DXY) is up 0.2% on the day at 96.23 and the S&P 500 futures are losing 0.65% on the day. If risk-aversion continues to dominate the financial markets in the second half of the day, the DXY could push higher and drag the pair toward 0.6500.



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Decade of the Dollar at Imminent Risk as Slide Threatens Uptrend

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The slump in the dollar is threatening to bring to an imminent end its near-decade-long uptrend against major peers.

Deutsche Bank’s Trade-Weighted Dollar Index -- a gauge of the currency against the U.S.’s most important trading partners -- has fallen to test the trendline in place since 2011, a break of which would be an important signal for dollar bears. The index has dropped more than 1% so far this month amid weakening demand for havens, an ongoing rally in risk assets and a shift in sentiment toward currencies like the euro and yuan.

Dollar strength has been a feature of much of the last 10 years. The trade-weighted basket climbed over 40% from the 2011 low to its recent peak in March, at the height of coronavirus fears. Yet a growing chorus of commentators is calling for the currency to decline, as the global economy attempts to recover from the impact of the pandemic.

The ICE (NYSE:ICEU.S. Dollar Index -- another gauge of the currency -- is expected to weaken about 2% to 94.1 by the second quarter of next year, according to an analyst survey compiled by Bloomberg. It traded around the 96 level Thursday.

“Improving domestic economic trends in the euro area and China, as well as our rising conviction in structural dollar weakness over time, reinforce our view that the dollar is poised to weaken against these major currencies,” wrote Goldman Sachs Group Inc (NYSE:GS). strategist Zach Pandl this week.


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USD/CAD Falls to One-Week Low as BoC Says Economy Avoided Worst Case Scenarios

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The loonie gained on the dollar on Wednesday after the Bank of Canada kept its key interest rate unchanged and said the slump in the economy was not as bad as feared.

USD/CAD fell 0.73% to C$1.3512, its lowest in since July 9.

The Bank of Canada (BoC) kept its benchmark interest rate at the effective lower bound of 0.25% and vowed to keep rates unchanged until at least 2023.

In a boost to hopes of a robust recovery, the central bank said recent data had suggested the economy had bottomed in April.

"We now estimate that the economy contracted by about 15 percent in the first half of this year," the central bank said in its monetary policy statement. "As deep as this is, it suggests the economy has avoided the most dire scenarios we laid out in the April MPRIn the third quarter, we expect to continue to see a strong rebound in jobs and output."

The BoC did, however, its 2022 growth outlook, indicating that "permanent scarring from the COVID-19 pandemic (less investment, less immigration, permanent business closures) will reduce the economy’s long-term productive capacity by 4%," RBC said.

The central bank also pledged to continue to purchase bonds in an effort to keep rates low across the yield curve and support lending activity.

"The bank will continue its large-scale asset purchase program at a pace of "at least $5 billion per week of government of Canada bonds," said BoC governor Tiff Macklem.

Beyond monetary policy, the loonie was also supported by a rise in oil prices and upbeat Canadian manufacturing data.

Manufacturing sales in Canada rose by 10.7% in May, beating expectations for a 9.5% increase.

Manufacturing could likely build on the gains made in May as early reports for June - improvements in the Canada manufacturing PMI and a jump in manufacturing hours worked -  have been a "little more positive


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