China’s economic woes intensify

China’s industrial production rates for July came in lower than expected, adding to the fears that the world’s largest economy appears to be failing to recover since its post covid re-opening in January. Furthermore, the reduction in the retail sales rate  appears to be adding to China’s existing economic woes, with the PBOC lowering the rate on its one-year loans to 2.5%, the greatest reduction since 2020. Interestingly, Bloomberg stated that the youth unemployment data was not released, potentially hinting that the situation is much worse than what was anticipated. Over in Japan, the country’s Preliminary GDP rates come in better than expected for both on a yoy level and on a qoq level, potentially validating the BOJ’s decision to maintain their ultra loose monetary policy. However, the current exchange rate against the dollar has prompted statements from BOJ’s Suzuki that  the bank will respond appropriately to excessive moves in the FX market. The RBA’s August meeting minutes state that there is a “credible path back to the inflation target with the cash rate staying at its present level”. Potentially implying that the bank may be near or at its terminal rate level, yet the bank acknowledges that if inflation is persistent that what is currently forecasted, the bank may increase interest rates should it be deemed appropriate. In the equities markets, we note that in a report by Bloomberg, it is stated that UBS (#UBS) has agreed to pay $1.44 billion in order to settle a case with the US Department of Justice regarding how the company had handled residential mortgage-backed securities. Furthermore, we note that Home Depot (#HD) is due to release its earnings today.

EUR/USD appears to be moving in a downwards fashion, having broken below the sideways moving channel formed on the 3^rd of August and having formed a downwards moving trendline on the 10^th of August. We maintain our bearish outlook and supporting our case is the aforementioned downwards moving trendline, in addition to the pair breaking below support now turned resistance at the 1.0927 (R1) resistance level. For our bearish outlook to continue, we would like to see a clear break below the 1.0838 (S1) support level, with the next possible target for the bears being the 1.0740 (S2) support base. On the other hand, for a bullish outlook we would like to see a clear break above the 1.0927 (R1) and the 1.1040 (R2) resistance levels, with the next possible target being the 1.1140 (R3) resistance ceiling.

Home Depot appears to be moving in an upwards fashion, with the stock now aiming for the 334 (R1) resistance level. We maintain a bullish outlook for the stock and supporting our case is the RSI indicator below our Daily chart which currently registers a figure near 70, implying a bullish market sentiment. For our bullish outlook to continue we would like to see a clear break above the 334 (R1) resistance level, with the next possible target for the bulls being the 344 (R2) resistance ceiling. On the other hand, for a bearish outlook, we would like to see a clear break below the 325 (S1) support level, with the next possible target for the bears being the 315 (S2) support base. However, we highlight that the company is due to release it’s earnings report later on today and as such, there may  be increased volatility at the time of the earnings announcement, with the potential for the stock to move in either direction.

Other highlights for the day:

In today’s trading session we note the UK’s unemployment rate for June, Sweden’s CPI rate for July, Germany’s Economic Sentiment and Current conditions figures both for the  month of August and later on in the day, the US Retail sales rate and Canada’s BOC Core CPI rate both for the month of July. In tomorrow’s Asian session we highlight Japan’s Reuters Tankan Manufacturing Index figure for August. On a more monetary level, we highlight Minneapolis Fed President Kashkari’s speech later on today and the RBNZ’s interest rate decision due out in tomorrow’s Asian session.

#EUR/USD H4 Chart

Support: 1.0838 (S1), 1.0740 (S2), 1.0640(S3)

Resistance: 1.0927 (R1), 1.1040 (R2), 1.1140 (R3)

#HD Daily Chart

Support: 325 (S1), 315 (S2), 302 (S3)

Resistance: 334 (R1), 344 (R2) 355 (R3)

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