US Dollar outmatched by Chinese Yuan and Japanese Yen

NEW YORK (September 11) The US Dollar (USD) tumbles lower this Monday after a surprise intervention from the People’s Bank of China (PBoC). The PBoC held a meeting in Beijing on FX markets and confirmed that it will prevent any “over-adjustment” risk in the Yuan. It fixed its Yuan at 7.2148 USD/CNY where 7.3391 USD/CNY was expected. 

Although it will be a very calm Monday in terms of the calendar and no US Federal Reserve speakers scheduled, keep an eye on the US bond market. This Monday three different tenures are set to be auctioned. With plenty of supply to be issued in the markets, US yields might rise again. Remember that bonds are quoted in prices, while yields move inversely to that price. With more supply issued in the markets, prices can drop and yields rise, supporting a stronger US Dollar. 

Daily digest: US Dollar two-faced 

• Plenty of rumours in the FX markets abound on Monday on the possibility for the Japanese Central Bank (BoJ) to loosen its Yield Curve Control (YCC), which would see its bond yields soaring higher. 
• The G20 meeting has not brought any significant headlines or breakthroughs, as most news outlets are focusing on the absence of Russia and China as a telling sign. 
• The People's Bank of China (PBoC) has issued again a strong peg for its Yuan against the US Dollar. Additionally, it held a meeting in Beijing to outline an FX strategy in order to avoid speculation on a weakening Yuan. The comments spooked speculators and saw the Yuan strengthening near 1% against the US Dollar.
• In the fallout of those earlier PBoC comments, meeting and fixing, the Greenback lost over 1% as well against the Australian Dollar (AUD/USD) and the Japanese Yen (USD/JPY). 
• Equities are looking for direction with no real notable outliers to mention. The only element to mention are the US Nasdaq futures, which are up over 50% in pre-trading. 
• The CME Group FedWatch Tool shows that markets are pricing in a 93% chance that the Federal Reserve will keep interest rates unchanged at its meeting in September. 
• The benchmark 10-year US Treasury bond yield trades at 4.28% and is steeping again. The same story looks to continue this week with the US Treasury issuing a lot more debt, which causes prices to drop and yields to soar. 

US Dollar Index technical analysis: Soft landing

The Greenback is taking a firm step back after falling over 1% against the Yuan, Yen and Australian Dollar. The overall cross for the Greenback is blood red for all its G20 major peers. Nonetheless, the sell-off in the US Dollar Index is notable but remains contained and might ease once the US session opens this week. 

The new high to watch is at 105.16, both the high from last  Thursday and the six-month high. The US Dollar Index first needs to gain back its lost territory from this Monday and break above the peak of Thursday mentioned here before. From there, the next high is at 105.88, the high of 2023.

On the downside, the 104.50 level already provided support  ahead of 104.44. That is the high of August 25th and should act as a pivotal level. Once that gives way, a substantial downturn could take place to 103.03, where the 200-day SMA comes into play for support. 

FXStreet