China Allows CNY To Rise Against The Dollar

The US dollar gained against the major currencies, except for the Swiss franc, which strengthened to its best level against the euro since April 2017.  It has risen for six of the past seven weeks, and the week that it fell, it slipped less than 0.1%. The franc's strength could be a sign of fear in the market, but the other so-called safe-haven currency, the Japanese yen was the weakest of the majors, falling almost 0.65%. 

Similarly, the dollar rose against most emerging market currencies. The Chinese yuan was the second strongest currency (-0.85%) behind the Indonesian rupiah (~0.95%). While the Mexican peso climbed another 0.7%, Brazil's real fell 1.5%, bringing this year's loss to 3.15% and only bested by the South African rand's 3.25% drop, though the latter got a surprises 25 bp rate cut out of it as well. 

The S&P 500 and the Dow Jones Stoxx 600 rose to new record highs, and the MSCI Emerging Market equity index extended its advancing streak to the seventh consecutive week, the longest rally in a couple of years. A notable exception is the Shanghai Composite, which fell by about 0.5%, the first decline in seven weeks. 

Meanwhile, a combination of official comments and dismal data, including a dreadful retail sales report before the weekend, has sparked a shift in Bank of England expectations. A week ago, the market was pricing less than a one-in-four chance and now is nearly a three-out-of-four chance discounted for the Jan 30 meeting, Carney's last. 

Dollar Index  

The last two sessions have seen impulsive dollar gains. Thursday, the Dollar Index is at a seven-day low, testing support near 97.00. By the close of business Friday, it was at 97.65, a new high for here in 2020. The price action looks constructive, and a possible head and shoulders pattern implies potential toward 98.65. The immediate hurdle is the 200-day moving average around 97.70. The MACD is still trending higher, but the Slow Stochastic ascent is slowing.

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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