The uncertainty derived from the looming Fed rate hike decision punished Asian equities as a wave of risk aversion restrained the US markets yesterday. In the overnight Asian session, it was announced that China’s CPI rose by 2.0%, not only beating expectations but rising at the fastest pace this year. While the stronger headline CPI reading attempted to provide support to Asian equities, this was not long-lasting and the Asian markets are still in the red with weak data from Japan concerning market participants this morning. The Shanghai Composite is currently trading nearly 1% lower, despite Chinese Premier Li Keqiang expressing at the World Economic Forum in Dalian that the economy was stabilizing and remains on track to attain its 7% growth target for this year. The Shanghai Composite Index has oscillated for the most part of the week and it feels like a bigger catalyst may be needed to promote a real direction.
In the United Kingdom, the main focus today will be the MPC rate statement. The GBP was exposed to losses in yesterday’s session as Manufacturing Production m/m contracted in July. If the MPC statement resonates a dovish tone and clues to when a rate hikemay occur are omitted, then the GBP may most likely be exposed to further losses, with the GBPUSD potentially sinking back below the 1.5300 level. The United States will be releasing its unemployment claims in which results are expected to be positive. The USD remains supported and data from the United States has been robust for an extended period. Today’s release may be seen as an attribute which may bring the Fed closer to a rate hike before year-end.
Within commodity currency division, the NZD has been exposed to more losses. The Reserve Bank of New Zealand (RBNZ) not only cut rates by 25bp for the third time this year a few hours ago, but warned market participants of more potential cuts in the future. The New Zealand economy encountered downsides pressures from declining dairy milk and commodity prices, which has encouraged dovish moves from the RBNZ and punishment for the NZD.
A weak NZD may support the export competitiveness and encourage local consumers to look for products locally with the goal of promoting domestic economic growth, but fundamentally this single currency remains heavily bearish. While the NZDUSD has declined rapidly over the previous couple of months, there remains potential for further drops and the NZDUSD will likely remain an excellent pair to observe on the back of monetary policy divergence between the RBNZ and US Federal Reserve.
The decline in commodity prices in addition to Canada entering a technical recession in Q2 has put pressure on the CAD. The CADJPY is technically bearish on the daily timeframe. As long as prices can keep below the lower high at 92.50, a decline back to the 89.50 may occur. Lagging indicators such as the 20 SMA and MACD both point to the downside.
The CHFJPY found some support at the 122.00 level late last week. This pair remains bearish on the daily timeframe, but prices may be in the process of correcting. The 50% Fibonacci level of 125.50 looks realistic, as this is also where the 20 daily SMA resides.
The EURCAD still remains bullish on the daily timeframe as long as prices can keep above the 1.4650 support. A breakout above the 1.5000 resistance may open a path to the next relevant resistance at 1.5400. The MACD trades to the upside, whilst prices are currently marginally above the 20 SMA.
Gold remains bearish on the daily timeframe. Prices are below the daily 20 SMA and the MACD has crossed to the downside. The light support at 1120.0 has been breached which may open a path to the next relevant support at 1080.0. A move back above 1135.0 invalidates this daily bearish outlook.