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Forex: A calmer tone emerging

The stabilization seen on the Chinese yuan overnight should make for a more comfortable end to the week. The fix on USDCNY was marginally lower which allowed for a stabilization of the onshore rate and fall in the offshore rate. This also follows on from the comments seen from the PBOC yesterday, playing down the perception that the currency was poised for further and sustained devaluation in the coming weeks. The impact on emerging markets currencies has been notable, but not excessive, with most Asian currencies outperforming the Chinese currency since China’s initial devaluation on Tuesday, the Malaysian Ringgit the main exception to this development. This backdrop at least provides for a more comfortable and likely less volatile end to the week for most major currencies.

So far today, the GDP data seen in the Eurozone has fallen to the disappointing side, with French data flat on the quarter and German data falling short of expectation, rising 0.4% on the quarter (vs. expectations for a 0.5% gain). Data for the Eurozone as a whole is released later this morning, where the anticipated 0.4% gain is unlikely to be met given the numbers seen this morning. The euro has managed to reverse the initial small losses seen on the back of the move, with the Greek parliament voting to back a third bailout package. For EURUSD, the 1.1214 level is the initial upside resistance level to watch, with the charts suggesting a more consolidative tone for the end of the week. Even more stable has been cable of late, confined to a 2.5 big figure range for over a month now, with the best hope for a break higher coming from a shift away from a September tightening view from the Fed.

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