By Lukman Otunuga, Research Analyst, FXTM
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The China saga continues as the Shanghai Composite Index migrates into positive territory, with the major market concluding trading +1.89% higher. Sentiment for the China markets still remains bearish as finance luminaries have criticised President’s Xi Jinping’s management for what they characterise as a series of inept and potentially detrimental attempts to sustain the nation’s equities and economy.
The focus for Asia this week remains on the China flash PMI on Wednesday for which a reading of 47.5 has been estimated for September. With the manufacturing industry in China already in a period of contraction, a release which is below expectations, may expose the markets to further weakness and vulnerability.
According to Chinese State Councilor Yang Jiechi, the stock markets are not a reflection of the health of the world’s second largest economy. He stated the concerns were overblown and just like Premier Li Keqiang, remained defiant that China would retain its 7% growth target which would be the engine for global expansion. In contrast, recent data from China has continued to outline nothing other than a deep economic downturn with the additional fears that the China data is much weaker and erratic than official statistics depicts. A China PMI that prints below expectations may induce further weakness in Asia which may threaten the US equity stock markets which as of writing closed in the red territory on Friday.
A drop in US oil inventories last week inspired WTI bulls to breach the $47.50 level before gains were surrendered as prices returned to $44. Despite the upsurge, prices still continue to retain stability with support at $44 holding well. OPEC forecasted WTI to return to $80 by 2020, but as of now the commodity continues to wait for the next relevant release or event to determine which direction the price is going to. The next major catalyst which may lead to a sizable move within WTI may be a reduction in demand following global growth concerns.
The focus On Monday remains on the speech by FOMC member Lockhart in the evening. The Fed board member is considered dovish and if there is a Q&A session from the audience, then attention may be on any additional information about last week’s message from the FOMC.
EURJPY: The EURJPY is in the process of turning bearish on the daily timeframe. The bearish engulfment experienced in Friday’s session may provide the EURJPY bears the foundation needed to breach the 135.50 support. A solid daily close below 135.50 may open a path to the next relevant support at 133.50. A move back above 137.33 invalidates this daily bearish outlook.
GBPCHF: The GBPCHF remains in a period of consolidation with support at 1.4900 and resistance at 1.5100. Prices are trading above the daily 20 SMA but the MACD is currently looking flat. The breakout/down strategy remains valid on this pair. A breakdown below 1.4900 may open a path to the next relevant support at 1.4650.
CADJPY: The CAD remains under pressure due to the decline in commodity prices. The CADJPY remains technically bearish as long as prices can keep below the 92.50 resistance. The lagging indicators show conflicting signals with the MACD trading to the upside but prices being above the daily 20 SMA. A solid breakdown below 89.50 may be needed for the bearish trend to resume.
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