China’s weaker currency for stronger economy
China’s data package released this morning exceeded expectations in countering the worsening market sentiment.
Official data showed a 5.4% y/y rise in retail sales in August compared to the expected 3.8%. The retail sector has benefitted from pent-up demand after a sluggish 2.7% MoM. Industrial production added 4.2% YoY against expectations of 3.8%.
These improvements are mainly attributable to the easing of coronavirus restrictions but may also be a reaction to the stimulus package implemented last month.
The recent economic acceleration may also be linked to the weaker renminbi, which has lost 4.7% against the dollar in less than a month.
The USDCNH gained 11.5% from March local lows. In contrast to Europe, where a weak Euro is becoming a brake on the economy, the weaker renminbi may be warmly greeted by the authorities.
China’s data package released this morning exceeded expectations in countering the worsening market sentiment.
Official data showed a 5.4% y/y rise in retail sales in August compared to the expected 3.8%. The retail sector has benefitted from pent-up demand after a sluggish 2.7% MoM. Industrial production added 4.2% YoY against expectations of 3.8%.
These improvements are mainly attributable to the easing of coronavirus restrictions but may also be a reaction to the stimulus package implemented last month.
The recent economic acceleration may also be linked to the weaker renminbi, which has lost 4.7% against the dollar in less than a month.
The USDCNH gained 11.5% from March local lows. In contrast to Europe, where a weak Euro is becoming a brake on the economy, the weaker renminbi may be warmly greeted by the authorities.
China’s consumer and producer prices growth is close to 2.5% y/y, compared with 9% CPI growth in the Eurozone and 8.3% in the USA.
The weaker yuan supports Chinese exports’ competitiveness and slightly boosts domestic consumption but has not yet provoked excessive pressure on prices.
Yesterday the Chinese offshore yuan crossed the 7.0 per dollar line and is trading at 7.03 today. A significant psychological level in the past forced the authorities to step in to defend their currency in 2016 and 2018.
In 2019 and 2020, the turning points have been higher, close to 7.15. It is well worth being prepared that we will not see any meaningful action or serious verbal interventions by the Chinese or US authorities up to these levels.
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The weaker yuan supports Chinese exports’ competitiveness and slightly boosts domestic consumption but has not yet provoked excessive pressure on prices.
Yesterday the Chinese offshore yuan crossed the 7.0 per dollar line and is trading at 7.03 today. A significant psychological level in the past forced the authorities to step in to defend their currency in 2016 and 2018.
In 2019 and 2020, the turning points have been higher, close to 7.15. It is well worth being prepared that we will not see any meaningful action or serious verbal interventions by the Chinese or US authorities up to these levels.
📣Trade responsibly with fxpro.com
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The Pound's demise probably forces BoE to tighten harder
A package of retail sales statistics in Britain appears to have removed the last layer of support for the Pound, sending it into a dive. GBPUSD earlier today renewed its lows since 1985, dropping to 1.1350.
Fresh data showed a 1.6% m/m and 5.4% y/y drop in sales, which was noticeably weaker than the expected 0.5% m/m and 4.2% y/y decline. This upsetting surprise has added to the pressure on Pound, which has been losing 0.9% against the dollar and yen and 0.6% against the euro after the report.
A package of retail sales statistics in Britain appears to have removed the last layer of support for the Pound, sending it into a dive. GBPUSD earlier today renewed its lows since 1985, dropping to 1.1350.
Fresh data showed a 1.6% m/m and 5.4% y/y drop in sales, which was noticeably weaker than the expected 0.5% m/m and 4.2% y/y decline. This upsetting surprise has added to the pressure on Pound, which has been losing 0.9% against the dollar and yen and 0.6% against the euro after the report.
There has been an almost non-stop, albeit very measured, sell-off in the Pound since August 11, with a brief pause for a shake-out of the dollar bulls' positions. In turn, this momentum looks to be part of a downward wave since March. In that case, the GBPUSD can fall to 1.06, where the 161.8% Fibonacci mark passes from the February peaks to the July lows. It is also worth noting that this technical target is very close to the historical lows of the GBPUSD at 1.0520, which only adds to its attractiveness for the rest of the year.
Due to inflation being off the charts by historical standards, the Bank of England has much more motive to make currency or verbal interventions to buy the collapse of the Pound. This is especially true given the recent one-way movement in the British currency. As such, traders and investors should be prepared for a rate hike of more than 50 points next week, as previously done and expected. A tightening of monetary authority rhetoric is also likely.
Due to inflation being off the charts by historical standards, the Bank of England has much more motive to make currency or verbal interventions to buy the collapse of the Pound. This is especially true given the recent one-way movement in the British currency. As such, traders and investors should be prepared for a rate hike of more than 50 points next week, as previously done and expected. A tightening of monetary authority rhetoric is also likely.
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US Inflation expectations drop gives markets a chance for a breather
Preliminary estimates from the University of Michigan indicate that inflation expectations in the USA continue to normalise in September. Inflation in the "coming year" is estimated at 4.6% compared to 4.8% a month earlier and a peak of 5.4% in July. People's expectations correlate closely with current inflation levels and are therefore seen by many traders and investors as an early inflation indicator.
Potentially even more encouraging news from this front is that five-year inflation expectations have returned to 2.8% - close to the multi-year average until the middle of last year.
This shift indicates that inflation expectations are unanchored, which will give the Fed some room and allow it not to push the monetary brake pedal to the floor. Americans accustomed to low inflation quickly returned their expectations to the multi-year norm when they saw gasoline prices slip and import prices fall.
Preliminary estimates from the University of Michigan indicate that inflation expectations in the USA continue to normalise in September. Inflation in the "coming year" is estimated at 4.6% compared to 4.8% a month earlier and a peak of 5.4% in July. People's expectations correlate closely with current inflation levels and are therefore seen by many traders and investors as an early inflation indicator.
Potentially even more encouraging news from this front is that five-year inflation expectations have returned to 2.8% - close to the multi-year average until the middle of last year.
This shift indicates that inflation expectations are unanchored, which will give the Fed some room and allow it not to push the monetary brake pedal to the floor. Americans accustomed to low inflation quickly returned their expectations to the multi-year norm when they saw gasoline prices slip and import prices fall.
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Although the Nasdaq100 index is now at its lowest level in about a month, the pressure on markets early next week could subside if market players discount the chances of a 100-point rate hike. They now stand at 16% versus 23% the day before. Zeroing in on this probability could support risk assets early next week.
Bank Holiday for the State Funeral of Queen Elizabeth II👑
September 19th is an official bank holiday in the UK, in remembrance of The Queen, whose funeral will take place today. As a result, the UK stock exchange will be closed, meaning that all UK shares, Indices & Index futures will be closed for trading.
More information can be found here: https://www.fxpro.com/trading-tools/market-holidays
September 19th is an official bank holiday in the UK, in remembrance of The Queen, whose funeral will take place today. As a result, the UK stock exchange will be closed, meaning that all UK shares, Indices & Index futures will be closed for trading.
More information can be found here: https://www.fxpro.com/trading-tools/market-holidays
#WaveAnalysis
#EURGBP broke major resistance level 0.8700
• Likely to rise to resistance level 0.8800
EURGBP continues to rise after the price broke above the major resistance level 0.8700 (which has been reversing the price from the middle of June).
The breakout of the resistance level accelerated the active short-term upward impulse wave 3, which begins to wave (3) from August.
EURGBP can be expected to rise further in the active impulse waves 3 and (3) toward the next resistance level 0.8800 (target price for the completion of the active impulse wave 3).
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#EURGBP broke major resistance level 0.8700
• Likely to rise to resistance level 0.8800
EURGBP continues to rise after the price broke above the major resistance level 0.8700 (which has been reversing the price from the middle of June).
The breakout of the resistance level accelerated the active short-term upward impulse wave 3, which begins to wave (3) from August.
EURGBP can be expected to rise further in the active impulse waves 3 and (3) toward the next resistance level 0.8800 (target price for the completion of the active impulse wave 3).
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#WaveAnalysis #SP500
S&P 500 broke key support level 3900.00
• Likely to fall to support level 3800.00
S&P 500 index recently broke the key support level 3900.00 (which has been reversing the price from the end of July) intersecting with the 61.8% Fibonacci correction of the upward ABC correction from June .
The breakout of the support level 3900.00 continues the active intermediate impulse wave (3), which is aligned with the clear downtrend from last December.
Given the expectation of further rate hikes in USA, S&P 500 index can be expected to fall toward the next support level 3800.00.
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S&P 500 broke key support level 3900.00
• Likely to fall to support level 3800.00
S&P 500 index recently broke the key support level 3900.00 (which has been reversing the price from the end of July) intersecting with the 61.8% Fibonacci correction of the upward ABC correction from June .
The breakout of the support level 3900.00 continues the active intermediate impulse wave (3), which is aligned with the clear downtrend from last December.
Given the expectation of further rate hikes in USA, S&P 500 index can be expected to fall toward the next support level 3800.00.
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#WaveAnalysis
#EURCHF reversed from support level 0.9550
• Likely to rise to resistance level 0.9700
EURCHF currency pair recently reversed up with the daily Hammer from the key support level 0.9550 (which stopped the sharp downtrend in August) intersecting with the lower daily Bollinger Band .
The upward reversal from the support level 0.9550 started the active short-term correction (iv) of waves 5 and (3).
Give the strength of the support level 0.9550, EURCHF can be expected to rise further toward the next resistance level 0.9700.
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#EURCHF reversed from support level 0.9550
• Likely to rise to resistance level 0.9700
EURCHF currency pair recently reversed up with the daily Hammer from the key support level 0.9550 (which stopped the sharp downtrend in August) intersecting with the lower daily Bollinger Band .
The upward reversal from the support level 0.9550 started the active short-term correction (iv) of waves 5 and (3).
Give the strength of the support level 0.9550, EURCHF can be expected to rise further toward the next resistance level 0.9700.
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#Bitcoin is down 8.8% over the past week, ending near $19,700. The losses continued to pile up on Monday, decreasing the price to $18.5K (-7.77% in 24 hours). Ethereum collapsed 25% to $1300 in exactly one week. Top altcoins fell from 10% (Solana, Dogecoin) to 19% (Polkadot). The exception was XRP (-0.5%).
Bitcoin’s main fall came Tuesday on higher-than-expected US inflation, raising the possibility of a sharper monetary policy tightening at this week’s Fed meeting.
The bear market was confirmed by BTCUSD actively selling off after testing the significant moving averages - the 50-day and 200-week moving averages. The latter, which had previously confirmed that the crypto market was growing over the long term, capitulated in June.
And in recent months has acted as a selling point from which to intensify, convincing investors that the 10k mark of Bitcoin will be seen sooner than the 30k mark.
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Bitcoin’s main fall came Tuesday on higher-than-expected US inflation, raising the possibility of a sharper monetary policy tightening at this week’s Fed meeting.
The bear market was confirmed by BTCUSD actively selling off after testing the significant moving averages - the 50-day and 200-week moving averages. The latter, which had previously confirmed that the crypto market was growing over the long term, capitulated in June.
And in recent months has acted as a selling point from which to intensify, convincing investors that the 10k mark of Bitcoin will be seen sooner than the 30k mark.
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Gold to choose its path for years: $1160 or $2600
#Gold's timid attempts to push back from the lower end of a more than two-year range were foiled by a stiff market reaction to US inflation statistics. Gold plunged to $1660 on Friday, rewriting its low from April 2020, while buying has been rising for the last 19 months just after touching the $1680 area.
Notably, gold reversed sharply last month from the round level of $1800, which had acted as support several times between February and June. Thus, the gold bulls are one by one, giving away the technical levels that were significant before.
In addition to the consistent retreat from the horizontal levels, we note that the downwardly directed 50-day moving average has been acting as local resistance since June. Last week's last downward momentum was precisely from this curve.
#Gold's timid attempts to push back from the lower end of a more than two-year range were foiled by a stiff market reaction to US inflation statistics. Gold plunged to $1660 on Friday, rewriting its low from April 2020, while buying has been rising for the last 19 months just after touching the $1680 area.
Notably, gold reversed sharply last month from the round level of $1800, which had acted as support several times between February and June. Thus, the gold bulls are one by one, giving away the technical levels that were significant before.
In addition to the consistent retreat from the horizontal levels, we note that the downwardly directed 50-day moving average has been acting as local resistance since June. Last week's last downward momentum was precisely from this curve.
The move to higher timeframes generates even more worries about the outlook for gold. Gold closed last week a hair above its 200-week moving average. That was mainly due to Friday's local bounce, as the bears were lowering profits from the big move. The start of the new week is under this curve. The fall under it in 2013 and the inability to get a foothold over it in 2016 were followed by a strong sell-off, which is a worrying sign now.
A test of the 200-week average is a once in a few years event that can set the trend for years to come, and the forthcoming Fed meeting this week provides a meaningful macroeconomic backdrop for this choice.
If the Fed's decisions and Powell's comments prove to be as adamant about fighting inflation as the markets now expect, we could see a repeat of the 2013-2015 pattern of gold's failure.
A test of the 200-week average is a once in a few years event that can set the trend for years to come, and the forthcoming Fed meeting this week provides a meaningful macroeconomic backdrop for this choice.
If the Fed's decisions and Powell's comments prove to be as adamant about fighting inflation as the markets now expect, we could see a repeat of the 2013-2015 pattern of gold's failure.
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Back then, a breakout of the lower end of the sideways range in 2.5 years of the steady decline took more than 30% off the price. A similar failure will wipe out all the gains from 2018, returning to the $1170 area over the next two years.
However, on our side, the odds are now slightly outweighed that the FOMC will shift the rhetoric towards easing, as the markets had expected since June. But they seem to have dropped that idea last week after the inflation report, and we note that it was quite a minor upshot. Moreover, long-term inflation expectations have already returned to normal. In addition, there are increasing signs that financial markets are under stress, which the Fed will also consider when setting policy.
Looking at financial markets in favour of the Fed indicates that the committee has slowed down asset sales from the balance sheet, increasingly deviating from its declared trajectory. Excessive stress on financial markets can effectively shut down the economy and turn around the labour market.
If the markets perceive current prices as profitable for gold and miners to buy, this week, we could see the formation of a long-term wave that could take gold above $2600 for the next two years.
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However, on our side, the odds are now slightly outweighed that the FOMC will shift the rhetoric towards easing, as the markets had expected since June. But they seem to have dropped that idea last week after the inflation report, and we note that it was quite a minor upshot. Moreover, long-term inflation expectations have already returned to normal. In addition, there are increasing signs that financial markets are under stress, which the Fed will also consider when setting policy.
Looking at financial markets in favour of the Fed indicates that the committee has slowed down asset sales from the balance sheet, increasingly deviating from its declared trajectory. Excessive stress on financial markets can effectively shut down the economy and turn around the labour market.
If the markets perceive current prices as profitable for gold and miners to buy, this week, we could see the formation of a long-term wave that could take gold above $2600 for the next two years.
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Is the Fed preparing to crash the markets, or will it give them a helping hand?
The weekly balance sheet data from the Fed showed an increase of 10.4 billion - a very unexpected change as the central bank should, on the contrary, have accelerated the balance sheet reduction since the beginning of September.
However, so far, the Fed has broadly stuck to its plan. The official release on May 4 stated that the balance sheet would be comprehensively reduced by a maximum of $47.5 billion per month from June 1. Over the 13 weeks of the summer, the reduction is $89bn, which is very close to the stated targets. It is also worth noting that the Fed has some headroom, as the balance sheet peaked at $8.946bn in mid-April, having shrunk by almost $133bn in that time.
The latest weekly data might be nothing more than a short-term divergence from the trend, while in the coming weeks, the Fed will intensify balance sheet sales at double the rate they did last summer.
The weekly balance sheet data from the Fed showed an increase of 10.4 billion - a very unexpected change as the central bank should, on the contrary, have accelerated the balance sheet reduction since the beginning of September.
However, so far, the Fed has broadly stuck to its plan. The official release on May 4 stated that the balance sheet would be comprehensively reduced by a maximum of $47.5 billion per month from June 1. Over the 13 weeks of the summer, the reduction is $89bn, which is very close to the stated targets. It is also worth noting that the Fed has some headroom, as the balance sheet peaked at $8.946bn in mid-April, having shrunk by almost $133bn in that time.
The latest weekly data might be nothing more than a short-term divergence from the trend, while in the coming weeks, the Fed will intensify balance sheet sales at double the rate they did last summer.
Add to that the 20% chance that the Fed will raise interest rates on Wednesday by 100 points at once, and you get the perfect mix for the market storm we saw starting a week ago.
Meantime, fears that the Fed will hike rates harshly are creating speculative potential. A 75-point rate hike will cause overvaluation in the markets as this 20% chance of a tougher move will be recouped. A change in longer-term expectations has an even more significant potential impact on the market.
The markets are now pricing in a 200-point increase to 4.25-4.50% on February 1, 2023, and the Fed will keep rates at that level at least until next year's end. A change in these expectations in either direction would be a significant driver for markets after the Fed.
An increase in the level from which the rate will plateau will press the markets and support the dollar. The opposite is also true. With a lower expected key rate, recovery in equities could begin and the dollar's rise risks slowing or reversing.
Meantime, fears that the Fed will hike rates harshly are creating speculative potential. A 75-point rate hike will cause overvaluation in the markets as this 20% chance of a tougher move will be recouped. A change in longer-term expectations has an even more significant potential impact on the market.
The markets are now pricing in a 200-point increase to 4.25-4.50% on February 1, 2023, and the Fed will keep rates at that level at least until next year's end. A change in these expectations in either direction would be a significant driver for markets after the Fed.
An increase in the level from which the rate will plateau will press the markets and support the dollar. The opposite is also true. With a lower expected key rate, recovery in equities could begin and the dollar's rise risks slowing or reversing.
#WaveAnalysis
#USDCAD broke key resistance level 1.3200
• Likely to rise to resistance level 1.3400
USDCAD currency pair under the bullish pressure after the price broke above the key resistance level 1.3200 (which has been reversing the pair from July, as can be seen below).
The breakout of the resistance level 1.3200 accelerated the active short-term impulse wave 3, which belongs to the intermediate impulse wave (3) from April.
Given the clear uptrend, strong CAD sales on oil losses, USDCAD can be expected to rise further toward the next resistance level 1.3400 (intersecting with the up channel from April, target for the end of minor wave (iii)).
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#USDCAD broke key resistance level 1.3200
• Likely to rise to resistance level 1.3400
USDCAD currency pair under the bullish pressure after the price broke above the key resistance level 1.3200 (which has been reversing the pair from July, as can be seen below).
The breakout of the resistance level 1.3200 accelerated the active short-term impulse wave 3, which belongs to the intermediate impulse wave (3) from April.
Given the clear uptrend, strong CAD sales on oil losses, USDCAD can be expected to rise further toward the next resistance level 1.3400 (intersecting with the up channel from April, target for the end of minor wave (iii)).
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