The mood across European and US stock markets was a little lighter yesterday as the stand-off between the US and China mellowed slightly. 

In the early hours of Tuesday morning, the People’s Bank of China (PBoc) fixed the yuan at a slightly firmer rate, and that was the catalyst for the lightened mood throughout yesterday’s session. The move by the Chinese central bank was a response to the US accusing the organisation of manipulating the currency markets, which the PBoC has denied.  

That fact the Chinese central bank on Monday allowed the yuan to slide, and then slightly strengthened the it suggests that Beijing are letting the US know they can use their currency as tool to get back at them for the tariffs on Chinese imports. The Chinese authorities need to strike a balance of making their currency soft enough to assist exporters, but not so soft it prompts international investors to withdraw funds from the country.

Overnight, the PBoC set the reference point of the yuan at 6.9996, which was slightly weaker than expected, and in turn we saw stocks in Asia slide a little. We could be in for a bit of back and forth when it comes to the Chinese currency in the near-term, and it is likely to be a driver of volatility.

Yesterday, Larry Kudlow, an economic advisor to the White House, said the US can’t tolerate the depreciation in the yuan, but at the same time, trade talks with China are still set to take place in September.

James Bullard of the Federal Reserve said he would like to see the impact of the July interest rate cut before making a decision on what the Federal Reserve should do next. In light of the recent escalation in trade tensions, many traders have been calling for another rate cut this year, but seeing as Mr Bullard – who holds dovish views, wants to play the wait and see game, another rate cut might not be a done deal. The major US indices posted solid gains yesterday, but when you compare it to how much ground has been lost in the past week, it pales in comparison.   

Gold’s bullish run continued yesterday as the metal racked up yet another six year high. The commodity has been broadly in an upward trend for just shy of a year, and the mixture of the trade fears and the weakness in the greenback in recent months has helped gold.

German industrial production will be released at 7am (UK time), and traders are expecting a fall of 0.4%, and that would be a drop from the 0.3% increase in May.

At 8.30am (UK time), the Halifax house price index will be announced and on a monthly basis the report is tipped to show a 0.3% rise, and the three month average on an annual basis is expected to show a 4.4% rise.

Oil will be in focus this afternoon as the Energy Information Administration report will be posted at 3.30pm (UK time), and oil and gasoline inventories are expected to fall by 3.3 million barrels and 1.16 million barrels respectively.                

EUR/USD – bounced back at the end of last week, and if the bullish move continues it might target 1.1300 – 200-day moving average. If the wider downward trend continues it might target the 1.1000 area.        

GBP/USD – has been driving lower since mid-March, and if the bearish move continues it might target the 1.2000 region. The 1.2400 area might act as resistance.

EUR/GBP – has rallied for over two months, and if it holds above 0.9089, it might bring 0.9300 into play. A move to the downside might put 0.9000 on the radar. 

USD/JPY – has been in a down trend since late April, and if the bearish move continues it might target the 104.63 region. Resistance might be found at the 50-day moving average at 108.09.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.