Interest Rates, Inflation and GDP Remain in the Spotlight for the Fourth Quarter
A bumpy month which saw a returning downtrend in commodities and a fresh wave of uncertainty play out in global markets has culminated in the first day of the fourth quarter, which has so far experienced a rise in equities as markets question the determination of the Fed to raise interest rates.
Data released yesterday illustrated the weak inflation picture for the Euro Area as a whole, with specific countries like Germany and Spain posting deflation to confirm the findings. A -0.10% decline in annual inflation is largely driven by a stubborn oil market that continues to fall. The negative inflation is a wakeup call for ECB policymakers, who are likely to begin discussing the possibility of increasing asset purchases in order to stoke the metric. Perhaps these efforts and a slowly rallying oil market will be enough to stop the deflation, with the last few weeks seeing a braking of the large negative daily swings that have been common in oil prices. The gains seen last quarter in the EURUSD pair have been entirely erased, with the new level of 1.1300 confirming a bearish trend and threatening to fall below 1.1200. The next support level of 1.1100 is key, and could indicate further momentum to the downside should it submerge below this line.
The monthly manufacturing report from China has revealed a slightly better than expected number, with an increase of 0.10 over the anticipated 49.70 from last month, to sit at a reasonable 49.80. Slow growth is expected given the recent troubles in the region, but any positive or break even numbers, in the case of a flat line non-manufacturing number of 53.40 are good signs. Final manufacturing from the Caixin PMI report read 47.20, also directly in the sights of expectations. The good news from China has driven a boost in the currency of one of the country’s most prolific trading partners, Australia, which saw a 0.68% gain in the Aussie dollar during the session. Despite the sideways pattern in the currency recently, the upside trend has spurred 5-day highs of around 0.7036. The next goal is to manage to stay above the traditionally hard-won resistance level of 0.7035.
Equity benchmarks in the United States have managed to close the month on a positive note, with slight gains posted despite the bearish market temperature. The catalyst for renewed downside risk in the stock market is the revision lower in corporate earnings expectations and reports of falling revenue amidst a weak global environment. Today’s session saw the key resistance level of 1915 in the S&P500 being broken, after a doji reversal candle formation in the index near 1870 was seen just days ago. The main resistance levels for the line are between 1945 and 1950, which are drawn from the lows experienced at August 24th and September 18th. If the index makes it past this point then the risk of further downside momentum could evaporate in the near-term, though the tough resistance level at 1981 follows.
NZDUSD Equidistant Channel Trading Opportunity
Following the modest gains in Chinese manufacturing figures, currencies in the Asia-Pacific have been gradually rebounding from multi-year lows as expectations of a rebound in economic activity prevail. Despite the worsening outlook for the region considering the slowdown facing China, the Australian and New Zealand dollars have managed to rally on renewed optimism. The New Zealand dollar is currently trending higher in an equidistant channel formation exhibiting a strongly bullish bias. Ideal positions initiated at the lower channel line should be targeting the upper channel line as an exit. A move below the lower channel line could indicate a potential channel-based breakout to the downside in the NZDUSD pair. Fighting the prevailing uptrend is not suggested due to expanded risks and narrower reward.