China’s economy slows, eyes on the Fed

The USD continued to lose ground against its counterparts during today’s Asian session, as the market’s attention fixates on the release of the Fed’s interest rate decision on Wednesday. The bank is expected to proceed with an outsized rate cut of 50 basis points and currently Fed Fund Futures imply a probability of 59% for such a scenario to materialise. Such a scenario, if also accompanied by a dovish tone in the accompanying statement and Fed Chairman Powell’s press conference, could weigh on the USD yet at the same time could provide support for US stock markets and gold’s price.

On a technical level we note that major US stock market indexes such as Dow Jones, Nasdaq and S&P 500 were on the rise in the past week. It’s characteristic that the S&P 500 almost fully recovered the losses of the first week of September and is now aiming for the 5675 (R1) resistance line, which is a record high level. The RSI indicator has risen above the reading of 50, implying the build up of bullish tendencies for the index. Yet for a bullish outlook we would require the index to break the 5675 (R1) resistance line which was tested twice in the past two months and managed to reverse the bullish tendencies for the index. Should the R1 be broken, we set as the next possible target for the bulls the 5900 (R2) resistance level. Should the bears take over, we may see the index reversing direction and aiming if not breaking the 5440 (S1) support line.

Also note that China’s economy continues to show signs of slowing growth, given that on Saturday the released industrial output and retail sales growth rates for August, showed a slowdown beyond market expectations. The slow down may endanger China’s 5% growth target as the release implies a worsening of both the production and internal demand side of the Chinese economy. Calls for an increase of the Chinese government’s fiscal stimulus and PBoC’s monetary easing are multiplying. The market worries for the outlook of the Chinese economy are intensifying and in turn may weigh on riskier assets.

Despite AUD/USD opening with a negative gap this morning, it rose, regaining Friday’s losses and is currently testing the 0.6730 (R1) resistance line. We tend to maintain a bias for a sideways motion for the time being but we acknowledge some bullish tendencies. The RSI indicator remains close to the reading of 50, implying still a rather indecisive market. Hence, for a bullish outlook, we would require the pair to clearly break the 0.6730 (R1) resistance line and start actively aiming for the 0.6870 (R2) resistance level. Should the bears take over, we may see the pair reversing course and aiming if not breaking the 0.6575 (S1) support level.

Other highlights for the day

Today we get the Czech Republic’s PPI rates for August and later on the US NY Fed Manufacturing for September and Canada’s July manufacturing sales while ECB’s Lane and Guindos are scheduled to speak.

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On Tuesday we get Germany’s ZEW figures for September, Canada’s housing starts figure, the US retail sales rate, Canada’s CPI rates and the US industrial production rate all for the month of August. On Wednesday Japan’s machinery orders for July and trade balance figure for August, the UK’s CPI rates and the Eurozone’s final HICP rate both for the month of August and we highlight the Fed’s interest rate decision. On Thursday on the monetary front, we get Norway’s Norgesbank, Turkey’s CBT and UK’s BOE interest rate decisions, we get, New Zealand’s GDP rate for Q2, Australia’s employment data for August, the US weekly initial jobless claims figure and the US Philly Fed Business index for September. On Friday, we highlight from Japan, BoJ’s interest rate decision and we get Japan’s CPI rates for August, the UK’s retail sales rate for August, France’s business climate figure for September, Canada’s producer prices rate for August and ending off the week is the Eurozone’s preliminary consumer confidence figure for September.