Forex Comment Apr 23

Everything's up or down as bears and bulls battle to standstill

Yuan weakening likely, as is more monetary easing from the PBoC

by Uwe Parpart
Everything's up or down as bears and bulls battle to standstill

(ATF) US stocks had a good day Wednesday and the sentiment was conferred to Asia.

Only the Nikkei balked at joining in as the Cabinet Office in its monthly assessment said the economy was in an "extremely severe situation" and "getting worse rapidly." That's harsh and in the face and very un-Japanese-like; equities sank.

Elsewhere in Asia, albeit cautiously, equities were bought as oil prices recovered and signaled a measure of optimism. The first WTI future traded at $15.71 per bbl at 6pm HK time, up 14%.

European equities and US futures are mixed as traders are unwilling to make any decisive moves prior to Thursday morning's new US unemployment claims. Those are expected to come in at 4.5 million. No need to try and catch that falling knife.

Such caution helps the US dollar and the DXY traded up 0.17% at 100.5570. 

The impact of all of this on the Chinese currency was negligible. It's comfortable trading in line with the USD. CNY stood at 7.0829 at 6pm HK time, virtually unchanged from morning parity of 7.0887.

Going forward, even if positive global equity sentiment holds up, we will likely see some yuan weakening. The low oil prices are inducing PPI deflation in China, which will give the People’s Bank of China the opportunity to push more monetary easing to boost economic recovery.