China’s trade data enhance market worries

The USD remained relatively unchanged yesterday before starting to gain during today’s Asian session. On a monetary level, the rift between Fed officials regarding the future actions of the bank was highlighted yesterday as NY Fed President Williams stated that the bank may be nearing its peak rate implying that no more rate hikes would be required, as inflation has already started to come down. The statement seems to come into contrast with Fed Board Governor Bowman’s statement that more rate hikes are required. We highlight the planned statements of Philadelphia Fed President Harker and Richmond Fed President Barkin today, with the heavy weight of attention being on the latter as he tends to lean more on the hawkish side. Overall and given the low number of high-impact financial releases stemming from the US today we expect fundamentals to lead the way for the USD.

North of the US border, Loonie traders seem to prepare for the release of Canada’s trade data for June. The trade deficit is expected to narrow and if actually so could provide some support for the CAD, which has weakened substantially against the USD during today’s Asian session. Yet also a possible improvement of the market sentiment may provide some support for the Loonie, which as a commodity currency is considered a riskier asset. Furthermore, the path of oil prices could affect the CAD as Canada is a major oil-producing economy, with any rise in oil prices possibly clipping the possible losses of the CAD. USD/CAD edged higher aiming for the 1.3450 (R1) resistance line during today’s late Asian session. We tend to maintain a bullish outlook for the pair given that also the RSI indicator seems to be on the rise. Should the bulls actually take over we expect USD/CAD to break the 1.3450 (R1) resistance line with the next possible target for the bulls being the 1.3565 (R2) resistance level. Should a selling interest be expressed by the market we may see the pair relenting any gains made, breaking the 1.3335 (S1) support line and start aiming for the 1.3230 (S2) support level. 

Across the world the Aussie also was on the retreat against the USD, given the rise of the greenback, but also there were substantial worries stemming from China’s trade data for July. The trade surplus widened to US$80.6 billion, yet the widening was produced by a simultaneous wide contraction of the import and export growth rates. The release highlighted the headwinds faced by the Chinese economic recovery and could enhance the market uncertainty for the global economic outlook. Should such market worries be enhanced further we may see a detrimental effect on equities and oil prices as well as commodity currencies such as AUD, NZD and the CAD, while boosting safe-haven instruments such as the greenback. Currently, AUD/USD edged lower aiming for the 0.6515 (S1) support line. We tend to see the case for a bearish outlook given that the downward trendline guiding the pair since the 27^th of July, remains intact, there were renewed bearish tendencies in today’s Asian session and the RSI indicator starts aiming for the reading of 30. For a clearcut bearish outlook though we would require a breaking of the 0.6515 (S1) support line and the pair to start aiming for the 0.6400 (S2) support barrier. Should the bulls take over the reins of the pair’s direction we may see AUD/USD initially breaking the prementioned downward trendline, signaling an interruption of the downward movement but also breaking the 0.6620 (R1) resistance line, aiming actively for the 0.6725 (R2) resistance level.  

Other highlights for the day:

Today in the European session, we note the release of Germany’s final HICP rate for July. Oil traders may be more interested in the release of the weekly API crude oil inventories figure. During tomorrow’s Asian session, we note the release of China’s inflation metrics for July.

USD/CAD H4 Chart

Support: 1.3335 (S1), 1.3230 (S2), 1.3135 (S3)

Resistance: 1.3450 (R1), 1.3565 (R2), 1.3650 (R3)

AUD/USD  H4 Chart

Support: 0.6515 (S1), 0.6400 (S2), 0.6285 (S3)

Resistance: 0.6620 (R1), 0.6725 (R2), 0.6845 (R3)

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