Given the continual uncertainty enveloping the global financial markets as a result of further weak data from China and whether or not the Fed will begin raising US interest rates, the staff at FXTM shares their technical outlook on three currency pairs and explains why they remain fundamentally bearish on the Aussie.
Global Markets
An air of uncertainty envelops the financial markets as further weak data from China and the continual uncertainty over when the Federal Reserve will begin raising US interest rates has encouraged the markets to begin the week under pressure once again. Market participants are becoming jittery with the looming FOMC statement drawing closer and this uncertainty can lead to further losses Tuesday. As of writing, the Shanghai Composite Index trades notably lower at -2.53% with sentiment towards this market being dragged lower by a continual decline in economic data, while the Nikkei225 is stabilizing following the BoJ leaving policy unchanged overnight.
The continued signs of economic weakness in China have encouraged increased expectations that the Federal Reserve will delay raising US interest rates, but there still exists a tug of war with analysts’ expectations. While the NFP releases may have not got the USD bulls charging as they were before, the US economic data is still robust and the decline in total unemployment to 5.1% warrants a rate hike in the eyes of some. On the other hand, there are concerns a rate hike may punish emerging markets and expose them to further weakness.
In the European session Tuesday, some attention may be turned to the Sterling as CPI y/y for the United Kingdom will be released. Data from the UK is still consistently strong and the GBP has had a strong start to September, so far. Most analysts expect CPI to rise above the predicted 0.0% but the resumed selling in commodities is likely to weigh on UK inflation prospects. If CPI Tuesday for the UK prints below 0.0%, this may result in a setback on when the BoE plans to hike interest rates in 2016.
A strong rebound in the price of Iron ore has inspired some bullish momentum within the AUD which has showed noticeable gains against its counterparts. The RBA Monetary policy meeting minutes showed nothing new, and even though RBA Governor Glenn Stevens expressed that the China market collapse will only have a limited impact on the Australian economy, I remain fundamentally bearish on the AUD as there are no signs of momentum picking up in China and this will naturally have negative implications for those economies that are reliant on China trade.
The decline in oil prices has put pressure on the CAD. The EUR/CAD is fundamentally bullish on the daily time frame. Prices are trading above the 20 daily SMA and the MACD trades to the upside. As long as support at 1.4750 holds, there may be a further incline to the next relevant resistance at 1.5300.
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The CAD/CHF is technically in the process of turning bearish on the daily time frame. The MACD trades to the downside but prices are pressing against the daily 20 SMA. A breakdown below the 0.7220 relevant support will open a path to the next relevant level at 0.6975. A move back above the 0.7400 resistance invalidates this daily bearish outlook.
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The GBP/CAD is in a period of consolidation. The MACD shows little strength and prices are touching the 20 daily SMA. A breakout above the 2.0600 resistance may renew bullish momentum, with targets of 2.0950 which is the next relevant resistance.
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By the Staff at FXTM
