Forex analysis: China and its move to devalue
China's devaluation of the renminbi last week will put bearish pressue on the euro over the ensuing months as many of Europe's major exporters will be forced to lower prices in order to sustain market share.
German firms in particular will be hit by the Chinese currency move. This comes amid a period where the last four months has seen relative stability in the euro. The large exchange rate adjustment that brought the EURUSD down to 1.10 has been a boon to European exporters, however, China's new actions have turned the outlook negtive.
Initially dollar bearish
So far the initial reaction off of the news last week was a weakening of the dollar and some strength in the euro, yen, British pound, Aussie and Kiwi, however, that it not likely to be sustained. All of the aforementioned with the possible exception of Britain are highly susceptible to export competition and foreign exchange pricing is going to be a key factor.
Lower price action for euro, yen, Aussie, Kiwi
Look for these currencies to turn lower against the dollar starting the week of August 17. Markets will anticipate exchange rate adjustments by exporters and data from the U.S. is likely to re-focus market attention on the likelihood of a Fed rate hike perhaps as early as next month.
Economic calendar for Monday, Aug 17
Sunday: JPY Gross domestic product
Monday: CHF Retail Sales, EUR Trade Balance, USD, Empire State Mfr Index, NAHB Housing Market Index Treasury Int'l Capital Flows, CAD Foreign portfolio investment
There should be some good Forex trading opportunities this week. If you haven't already purchased my 30 hours of intensive Forex video instruction, you can still do so by clicking on the ad below. This is my acclaimed system of Market Composition + MMT + Mental Game.
Forex trading and Forex courses offered by Mike Norman, economist, trader and publisher of the Mike Norman Economics blog.