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Yuan Fixing Sends Asian Shares Down, Trade Wars to Drive FX Ahead

Yuan Fixing Sends Asian Shares Down, Trade Wars to Drive FX Ahead

Daniel Dubrovsky, Strategist

Asian Stocks Talking Points:

  • PBOC weakens the Yuan fixing rate versus USD by most in 2+ years
  • Asian shares, though mixed, headed lower amidst this development
  • Trade war fears seem likely to drive markets heading into the weekend

We just released our 3Q forecasts for the Japanese Yen in the DailyFX Trading Guides page

Asia/Pacific shares traded mixed by Friday afternoon trade after a rather poor performing day on Wall Street. The session went on rather quietly until the daily Yuan fixing rate, where the PBOC weakened it versus the US Dollar by 0.9 percent. This was the largest depreciation in a single day since June 2016, or more than six years ago.

Keep in mind that the world’s two largest economies are still in a heated situation in regards to trade tariffs. Last week, the US released its list of the potential additional $200b in Chinese import taxes. This was after equivalent retaliation from the targeted nation in response to the $34b in levies enacted on it by the US on July 6th. A weaker Yuan across the board can help to stabilize and offset some of the negative impacts from tariffs.

The weakening had a moderate impact on stocks as most fell as the news crossed the wires. Japan’s Nikkei 225 declined 0.57% heading into this week’s close. Meanwhile in China, the Shanghai Composite was slightly lower at -0.12%. South Korea’s KOSPI fell about 0.08%. Australia’s ASX 200 fared better with the index rising about a third of a percent.

In the FX spectrum, the Japanese Yen showed a minimal response to local inflation data which disappointed expectations. However, the BoJ is likely to stand put on its monetary policy path regardless. Rather, the anti-risk currency headed cautiously higher as the majority of stocks fell following the PBOC Yuan fixing. Meanwhile, the sentiment-linked Australian Dollar headed lower.

If some of the deterioration in sentiment continues into the end of this week, the Yen could keep gaining. This may be amplified is the US heads closer in the direction of imposing auto import tariffs. By the end of Friday, the Commerce Department is scheduled to finish hearings into whether or not auto imports pose as a national security threat.

Find out what retail traders’ Japanese Yen buy and sell decisions say about the coming price trends!

USD/JPY Technical Analysis: Upside Momentum Waning

The USD/JPY appears to be wedged in-between near-term support and resistance after pushing above the descending December 2017 resistance line. However, negative RSI divergence warns that upside momentum is waning. This could mean that the pair’s next leg could be lower.

For that, a break below the December/January support area on the 112.00 figure opens the door to test the 50% Fibonacci midpoint at 111.50. On the other hand, a push above resistance (113.28) paves the way to test the December 2017 highs.

Yuan Fixing Sends Asian Shares Down, Trade Wars to Drive FX Ahead

Japanese Yen Trading Resources:

--- Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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