A Look At The Charts - Sunday, August 18

The White House is unlikely to comment on it, even if it is aware that the Chinese yuan was the third strongest currency in the world last week. The British pound was the strongest, rising a little less than 1% against the dollar and snapping a 14-week plummet against the euro. None of the other major currencies appreciated against the dollar last week. The Chilean peso was the strongest among emerging market currencies, rising about 0.4%.It is the second consecutive weekly gain and may have been helped by the two-week increase in copper prices.  

That brings us to the Chinese yuan. It rose in the first three sessions last week and edged lower in the last two for a net gain of a little more than a quarter of a percent. The dollar peaked at the start of the week just shy of CNY7.07 and, although it pulled back, it remained above old resistance, which may now be support CNY7.0. The yuan is off 2.3% against the dollar this year.It does not reach the threshold of significance and is hardly an offset to US tariffs. 

The Argentine peso was the poorest performer. After depreciating by almost 25% in the first three sessions last week, it bounced back 9.6% and finished the week off 17.3%. It may come under pressure at the start of the new week. Fitch cuts its sovereign rating by three notches (from B to CCC), and the negative outlook warns of the risk of another cut.S&P cut its rating to B- from B and also has a negative rating. This leaves Moody's B2 rating (equivalent to B by the others) out of line, but it had switched to a negative outlook from stable last month. Also, the money market operation will be watched closely on Monday. If the central bank does not roll-over the full ARS260 bln of funds (LELIQ) that is due, it will likely add to the pressure on the currency. 

The market may test the resolve of the Hong Kong Monetary Authority as the dollar edges toward the strong end of its band (HKD7.85). The protesters started a campaign last week to disrupt by withdrawing funds from ATMs, but this is a minor source of pressure (less than the equivalent of $90 million on August 15). More important are the funds related to the 10% drop in the Hang Seng Index in four-week drop. Speculative pressure is evident in the forward market. On the day following the Fed's rate cut, the 12-month forward points closed around -136 and peaked last week near 180 before settling a little below 120. We expect the HKMA to vigorously defend the band if needed.

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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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