• “The recovery and upturn of the Chinese economy has become more solid with the enhanced economic stability. It is desirable to proceed further with reform of the RMB exchange rate regime and increase the RMB exchange rate flexibility”
  • Exact details of how this new found flexibility will manifest itself remain in question
  • What the papers had to say on the Chinese move
  • Improved risk sentiment led to sharp gaps higher on the open in the AUD in particular
  • The official Yuan mid-point was unchanged from Friday leading to some confusion but the Yuan has subsequently to 2-year highs against the USD
  • Oil traded higher on improved confidence in global growth prospects
  • Regional bourses rallied almost 2%
  • Rightmove survey of UK house prices +0.3% MoM
  • Greek PM says budget cuts will win over investors
  • Fitch ratings see no chance of EUR break-up
  • Fitch also says Japan PM claims of wanting to fight public debt will be tested

The USD opened quite sharply lower this morning after the weekend announcement by China that it is to allow greater flexibility for the Yuan in currency markets. Risk was generally on and this sentiment outweighed the traditional approach to Yuan moves of selling the JPY crosses and USD/JPY particularly.

AUD/USD gapped 125 pips higher on the open, trading straight through stops above .8750 and leaving many traders with up to 100 pip slippage. The market pulled back to .8750 after the Yuan mid-rate was announced at exactly the same as Friday but the AUD has again rallied as USD/CNY fell. A stronger Yuan is not necessarily a good thing for the AUD but the market has ignored this and concentrated on risk sentiment. Range: .8754/.8835 (NY close .8700)

EUR/USD took out stops above 1.2450 in early interbank trade, seeing a high of 1.2468. The Fitch and Greek statements will have generally helped the mood but we can expect to see some post-mortem enquiries in pairs like EUR/USD and EUR/CHF where there were stop-loss hunts in early thin markets. Range: 1.2369/1.2468, EUR/CHF 1.3695/1.3742

USD/JPY also took out stops in early trade, seeing a low of 90.04 in early interbank trade. The JPY crosses rallied as risk sentiment improved and USD/JPY jumped in line with them. Ranges: 90.04/95, 112.11/90

Sterling has been fairly quiet on the crosses, taking its lead from the EUR. Range: 1.4809/74

Markets: Nikkei +2%, HK +2%, Sydney +1%, Kospi +1%. Gold steady $1258/oz, Oil +1.25% $78.50/bbl.