Renminbi weakens to levels not seen since June

The Renminbi weakened overnight against the US Dollar to 6.2295, a level not seen in the past six months, with ongoing concerns that China’s economy is continuing its downturn. The weakness in the Renminbi intensified following the unexpected manufacturing PMI contraction last week, with many now expecting further easing from the People’s Bank of China (PBoC) in the coming months. The major catalyst behind the recent slowing in economic momentum has been weakening domestic growth, therefore I expect further interest rate cuts from the PBoC in early 2015. With inflation levels easing to a five-year low at an annualised 1.4%, there is far more leverage to reduce interest rates in an attempt to reinvigorate this aspect of the economy.

EURUSD bulls have felt a sting in its tails with the pair declining by over 240 pips since Wednesday largely thanks to comments from the US Federal Reserve, which is trying to calm investors by reiterating its intention to raise US interest rates next year, and also from Benoit Coeure, ECB Executive Board member, who said that the ECB can do more to combat low inflation. The pair concluded trading on Thursday at 1.2285. Economic data from the US is light today, therefore the Euro may attempt to recover some of its losses against the USD.

However, the comments from these two leading central banks just further underpins the complete divergence between the US and EU economic policies and highlights to traders that the longer term risks for the pair are firmly to the downside. Unless investors take profit on the USD, the pair will struggle to advance any higher than 1.2310 today.

Following UK retail sales for November performing in line with expectations and coming in much higher than forecasts, the GBPUSD swung over 70 pips higher and concluded trading at 1.5667 yesterday. We are looking at the prospects for the GBPUSD to erase some of its gains from yesterday. We know the Bank of England’s (BoE) outlook towards raising interest rates is likely to weaken further before inflation levels stabilize after the drop in the price of oil, therefore I see minimal investor attraction towards the GBP for the remainder of the year. As I have been noticing for the past couple of months, the major contributor behind any upside movement will be potential USD softness.

Gold is continuing to perform in line with expectations, with the metal being controlled by technical patterns at present. The yellow metal advanced to $1213 on Thursday, before finding support again just below $1190. The $1180 and $1190 support levels are seen as key support levels for Gold at present and if the metal attempts to advance on Friday due to the US economic calendar being very light, resistance can be found at $1205 and $1215. Silver appears to be attempting to advance, however it is finding tough resistance around $16.20. Unless Silver manages to surpass this area, I see limited bullish movement for the metal. Support can be located at $15.82, $15.70 and $15.50.

Written by Jameel Ahmad, Chief Market Analyst at FXTM.

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