Hello and welcome to the Key To Markets preview of the Week Ahead.
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5-day performance as of September 16th, 2021. 20:00 GMT
Source: finviz.com
In case you missed it….
Inflation still here: US consumer prices grew at a slower than expected pace in August but remain close to decade-highs. Traders bought the kneejerk dip in the USD after the news.
Retail shocker: There was a surprise jump in August US retail sales that confounded most economists. If the American consumer is back, it’s probably good for USD.
Oil storms ahead: WTI crude oil futures closed above the 70-handle for the first time since early August on tropical storm fears after Eda.
UK inflation: Consumer prices in the UK rose by the most in 9 years, sending GBP crosses higher.
Unlucky iPhone 13? Apple stock fell before and after the release of the new iPhone that many analysts called “boring” because of its lack of new features.
Ever-not so-Grande. Chinese authorities have notified banks that the massive Chinse property developer will not pay loan interest due in September.
Cathie keeps selling Tesla. Famed tech hedge fund manager has sold $266M in TSLA shares this month.
Microsoft buybacks: Bill Gates’ company announced it will repurchase $60 billion of its own shares.
Gambling losses: A fresh crackdown on Chinese gambling hub Macau weighed on casino stocks.
Shipping in the profits: It now costs $14,000+ to haul a 40-foot steel box from China to Europe. That’s up more than 500% on a year earlier.
Source: Bloomberg
Ever use intermarket correlations in your trading? If you are weighing up a longer term buy or sell opportunity, sometimes looking at how other related markets are moving gives a clue. The economic slowdown in China and the drop in Chinese equities is a big topic right now. This correlation between USD/CNH (inverted) and the ratio of China vs US indices implies one of either USD/CNH or China stocks are about to rally to return the correlation to normal.
Source: FXStreet
The Canada national election is on Monday September 20. The results will likely come in early Tuesday so if there is to be any effect on USD/CAD it should be then. Prime Minister Justin Trudeau made the decision to call a snap election on the basis that he would win it. That is always a gamble and there seems to be a good chance that might it backfire. Trudeau is still the bookies favourite but even if the opposition Conservatives led by Erin O’Toole did win, their economic platform is not vastly different when it comes to things like government spending, meaning any moves in the Canadian dollar might be short-lived.
The question is still when the Fed will start tapering. Consensus is that the Federal Reserve will not make any changes at this meeting, rather tapering will happen in either November or December. Were the Fed to announce the timing for tapering this month, that would be a hawkish surprise and likely positive for the USD. Given the shock miss on the August payrolls number and slight miss on CPI figures, the Fed can probably kick the can a little longer, which is USD neutral.
The MPC (Monetary Policy Committee ) of the Bank of England are apparently split 50/50 on whether economic conditions are worthy of tapering asset purchases according to Governor Andrew Bailey. The 9-year high in UK CPI data might have just been enough to tip the balance. If the UK central bank wants to prove its inflation-fighting credibility, then it will need to end QE early rather than continuing to its end-of-year target of £895bn. That should be GBP-bullish.
The People’s Bank of China (PBOC) is the first big central bank to set policy this week via its benchmark loan prime rate (LPR). Consensus is the bank hold rates steady but that could depend on the level of contagion around Evergrande. The Bank of Japan will likely be wanting to hold the ship steady until elections in November. The Swiss National Bank has chosen to focus on currency intervention and will probably only lift rates once the ECB does.
The situation at the Chinese property developer seems to be deteriorating by the day and it looks on course for imminent collapse. The question is whether Chinese authorities can contain the damage, so it doesn’t spread to other parts of the financial system. Most likely there will be lengthy bailout proceedings involving state-owned enterprises (SOEs) that shield wider markets, but the $300 billion in debts the company is on the hook for pose serious contagion risks.
Here you can find analysis of the major asset classes including the major forex pairs, gold, oil, and the S&P 500.
EUR/USD moved into a tighter range around 1.18, failing to break 1.185 and bouncing off last week’s highlighted demand area at 1.175.
GBP/USD saw the upside break of 1.388 we imagined last week but it was a false breakout, and the price has fallen back to 1.38 and the 20 DMA, which should break if the range is to hold.
USD/JPY broke a rising trendline defining the bottom of its short term range before bouncing off the Aug 16 low. Odds of break lower are higher while below 110.
AUD/USD fell back underneath 0.73 and remains bearish while posting lower lows and while it holds under the 20 DMA.
USD/CAD has formed a symmetrical triangle pattern that could breakout either way. It sits just beneath 1.27 resistance.
XAU/USD broke down from 1780 support to the demand area around 1750 after a brief touch of 1810 resistance highlighted last week. 1720 is next support.
BRENT held onto 70 support and went on to break resistance near 73 and trade up to 75. If a new uptrend is in place, the next resistance is 77.
US500 is consolidating underneath the 20 day moving average within a tight range around the 50% retracement level of the rally since mid-August.
Thank you very much for reading – and have a great week trading!
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