Pre-Market: Markets Celebrate Merkel’s Victory as the PBOC Saves the Yuan

Germany and China are in the center of attention today following yesterday’s deal on immigration between the coalition parties of the largest European economy, which ended a period of uncertainty. While in practice, the current plan could even deepen the current crisis in the EU, it was enough for another rally attempt in stocks. The deal also helped the Euro and global risk assets after yesterday’s hectic session, but the major indices are still trading within their recent choppy ranges, and the common currency is also just above its multi-month lows.

USD/Chinese Yuan, 4-Hour Chart Analysis

The strong decline of the Chinese Yuan that we pointed out yesterday accelerated in Asian trading, and the currency plunged below long-term support against the Dollar. After that the Chinese central bank intervened on the strong side to curb the speedy devaluation, while officials of the bank denied rumors that the country would use devaluation as a tool in the trade dispute with the US.

DAX, 4-Hour Chart Analysis

The intervention and the surprisingly open communication by the PBOC helped investor sentiment across the globe, and calmed fears of further escalation in the skirmish. That said, the Shanghai Composite is still clearly in bear market territory, and except the US all of the major markets are well below their all-time highs after the volatile first half of year.

USD/Turkish Lira, 4-Hour Chart Analysis

Emerging market currencies are still under pressure, with the Brazilin Real and the Turkish Lira both slipping towards their lows, as funding worries continue cast a shadow on the most vulnerable economies in the rising rate environment.

DOW 30 Futures, 4-Hour Chart Analysis

US markets opened a tad above yesterday’s closing levels, but the Nasdaq is notably underperforming just after the bell, and equities would need to show more bullish momentum to turn the short-term trend around.

Gold Bounces, Oil Remains Strong as Dollar Pulls Back

The US ISM Manufacturing PMI came in better than expected yesterday, and today’s UK Construction PMI was also a slight positive surprise, helping risk assets in early trading. The Great British Pound gained ground on the USD, similarly to most of its peers, with the Aussie and the New Zealand Dollar outperforming the rest of the forex segment thanks to the Chinese intervention.

Gold Futures, 4-Hour Chart Analysis

Gold is trying to gain footage near the $1250 level after a period of weakness, as crude oil continues to trade near its highs, with commodities staging a rally thanks to the Dollar’s dip and the risk-on shift. Trading volumes cold remain light throughout the week, as the Independence Day is approaching, so day traders should expect choppy conditions and sharp short-term moves in even the usually liquid assets.

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Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.