Dollar and Equities Rise After Chinese Bankers Cut Rates
Friday’s session saw policymakers from the Bank of China decide to cut one year lending and deposit rates to 4.35% and 1.50%, respectively. Reserve ratio requirements were also cut by 50 additional basis points in a move that boosted equities and the dollar.
On the back of comments from ECB President Mario Draghi last Thursday, the US Dollar continued to gain ground against several peers, reversing higher following several weeks of losses. The leader of the European Central Bank stated that the voting representatives are willing to implement an expansion to easing immediately should it be required. The Euro dropped on these dovish comments and also from news of rate cuts in China. The dollar gained from the combined news while the Euro dropped, and accordingly the EURUSD pair took a significant dive to close Friday at only 1.1010 after breaking a major level of support. New support may be found between 1.0950 and 1.0880 as the outlook for the Euro turns bearish and the potential for further dips this week arise.
Reports on consumer inflation in Canada have released a mixed bag of data, showing metrics in the country that are not strongly biased in either direction. Core inflation for September increased, though less than anticipated, and looks to remain steady at around the 2.00% target through the rest of the year. However, headline inflation fell -0.20% and slowed to 1.00% annually, down from 1.30% the month prior. Prices of food managed to climb 3.50% for the month, despite cheaper gas dragging down the broad inflation metric. Inflation in Canada seems to be weathering global conditions well, but the economy continues to experience slow growth like other commodity export economies. The US dollar closed at 1.3166 to the Canadian dollar, recovering almost two weeks of declines in the last week alone. USDCAD is poised to breakout higher, as evidenced by its current bullish engulfing candlestick pattern.
After prices tested lows at around 1865 on September 27th, the S&P 500 closed at 2075 on Friday, marking a fourth straight week of gains for the index. Movement broke above the 200-day moving average for the first time in several months as the outlook remains thoroughly positive for equities. The only shadow on 2015 forward momentum could be a potential alteration to monetary policy on the 28th of October or later in the year. Earnings season is now the main event for US equity benchmarks, with major technology companies like Apple and Twitter under the spotlight. The S&P 500 currently rests less than 100 points away from all-time highs in the index seen in May around 2132, with the upcoming FOMC meeting a threatening specter on what has been significant near-term upward momentum.
Crude Oil Equidistant Channel Trading Opportunity
Following two weeks of surprises when it came to increased stockpiles, crude prices have continued to edge lower on renewed concerns about diminished inventory capacity globally for surplus oil production. Although inventories showed a larger than anticipated build to stockpiles, oil output in general from the United States was unchanged after several straight months of declines. On a global basis, price competition remains fierce along with the lingering supply and demand imbalance. The downward trending equidistant channel formation in WTI crude oil prices exhibits a strongly bearish bias with the ideal short positions initiated at the upper channel line targeting the lower channel line. Any close above the upper channel line could be indicative of a channel-based breakout to be accompanied by renewed upward momentum.