 Hello and welcome to CMC Markets on Tuesday the 11th of August in the weekly market update. Now we've spent the last few weeks obsessing about what's been going on in Greece when in reality we really should have been a lot more concerned about something that's going on the other side of the world, namely in China. Now the latest economic data out of China shouldn't really have been a surprise given that the glide path of Chinese data has been tracking lower for the last three or four months certainly in the context of the declines in exports, the declines in imports as well as the deterioration pretty much across the board in its manufacturing sector as shown by the recent PMI data but also I think in the context of concerns about its banking system, the fact that the People's Bank of China has eased monetary policy four times since November and yet the economy continues to fail to show any significant signs of improvement. We also have been obsessing about whether or not the Fed is going to raise rates next month and this I think this morning's events in China could actually directly have some form of impact on whether or not the Fed does raise rates. We could see a ripple-out effect start to dictate what the Fed might do at its September meeting. So let's expand upon that a little bit further. Why have China, why has China decided to act now to devalue its currency? Well I think simply speaking I think they're starting to run out of ammunition with respect to interest rate cuts and reductions in reserve requirements. As I said earlier in my primer they've done it four times since November and yet nothing really seems to be working and I think it's not too hard to see why. Let's look at this first chart that I'm going to put up in front of you and what I've done is I've overlaid Euro dollar and I've also overlaid it with Euro, Chinese and NIMBY or Chinese Won whatever you want to call it and you can see since April-May last year the Euro has declined quite sharply against the Chinese Won and when you look at the trade numbers that we saw at the weekend it's not hard to see why the Chinese exports to the Euro area are down over 12%. When you look at how much the Chinese currency has appreciated against the Euro. Also it's a similar sort of story when you actually look at the Chinese currency against the Japanese Yen overlaid against Dolly Yen. Again since the beginning of 2014 we can see quite clearly that the rise in Dolly Yen has been pretty much matched by the rise of the Chinese currency against the Yen and it's not really a surprise given the fact that the Chinese currency is pegged to the US dollar. By loosening the peg the Chinese central bank have acknowledged that the Chinese Won is hurting their export capability and needs to come lower. Now the Chinese central bank can complain all it likes the Federal Reserve can complain all it likes but the fact of the matter is the Chinese central bank needs to do this if it needs to somehow reinvigorate its export market. So what does this mean for the Won going forward? Well in terms of going back to the previous chart of the Euro against the Won the key resistance level on this particular chart is 7.1. Now 7.1 is on the grey line on the chart. Now we've moved higher we can see that on the grey line moving higher. If Euro dollar continues to rebound the way that it has done then we could well see of the Won weaken further over the course of the next few months and in essence we could actually see this attempt to try and weaken the Chinese currency. The Chinese currency prompt the Fed to put off a potential rate rise. Why is that? Because I think of the risks that the deflationary effects of what the Chinese central bank are doing going to keep inflation low and as a result we could well see the Fed are on the side of caution over the course of the next few weeks and defer a rate hike. Now we could well get a little bit of colour on that Jackson Hole at the end of this month where the subject coincidentally is about inflation dynamics. So we've talked about weakness in the Chinese currency and whether or not we can expect to see further weakness I think that's quite likely. What does that mean for Euro dollar? I think that does potentially place further upward pressure on Euro dollar but until we break above 111.25 I'm not going to get overly bullish on Euro dollar and I'm not going to get overly bearish on Euro dollar unless we drop below 108.50 but what we have seen happen is we've seen a move higher in gold prices and I think this measure by the Chinese central bank could actually prompt some safe haven flows into gold and we've certainly seen some evidence of that in this morning's price action. If we look at this daily candle chart we've broken above the highs of the last few weeks but as I've stated in previous videos about gold and the break below $1,130 an ounce what I would like to see for a stabilisation in gold prices is for the market to move back through 11.35. Until we move back through 11.35 I'm not going to say that we've potentially seen a base in the gold price. We need to see an awful lot more upward momentum maybe a further depreciation in the one will bring that further momentum maybe the Fed putting off a potential rate rise in September will bring that. At the moment we don't really know the data in the US continues to come in on the mixed side but I think the intervention of Stanley Fisher the Federal Reserve Vice Chairman as a counter narrative to what Mr Lockhart was saying about a potential rate rise could well actually tip the scales towards the Fed holding off at least until December and that is something to bear in mind if you're looking to go long of US dollars. So hopefully all of that made sense. If you had any questions on anything we've covered in the video please feel free to tweet me at mhucin underscore CMC. Alternatively visit our Facebook page where there is a copy of my Bloomberg interview on this very subject which I did earlier this morning I'm otherwise until same time next week this is Michael Houston talking to you from CMC Markets.