Setting up for what proposes to be one of the most eventful weeks of the year including Scotland possibly seceding from the rest of the UK; European markets look like opening substantially lower after Chinese data came in worse than expected over the weekend.
Industrial production in China rose 6.9% in August year over year, down from 9% in July and below the 8.8% forecasted, marking the slowest rate of increase excluding the Lunar New Year holiday period since 2008. The pace of retail sales growth also slowed to 11.9% from 12.2% last month as growth in fixed-asset investment slowed to 16.5%.
With only Eurozone trade balance data of any market-moving significance in today’s European session, traders will likely be looking ahead to an especially important week for the UK with the Bank of England’s quarterly bulletin and inflation data tomorrow, followed by possibly more dissent in the BOE minutes, retail sales and the Scottish referendum later in the week.
The UK establishment unsurprisingly projected a firm pro-union stance over the weekend with most Sunday papers urging readers towards a ‘No’ vote although slightly less so in Scotland and the Queen broke her usual political silence urging voters to be “very carefully about the future”. The stance of the papers and the comments from the Monarch should strengthen the ‘No’ campaign and as such could ease the downward pressure on the British pound.
Overseas there is significant central bank action this week with the possibility of a change in the forward guidance from the FOMC at this month’s Fed meeting on Wednesday, the ECB will announce the first allotment of their TLTRO stimulus program and the SNB will possibly introduce a negative interest rate at their meeting on Thursday.
Bubbling in the background is Russia’s possible reaction to the latest set of Western sanctions which has perhaps already started to manifest itself with Poland reporting a 45% drop in natural gas imports.
The week is scheduled to round off with potentially the largest IPO in US history when trading in Alibaba (NYSE:BABA); the Chinese e-commerce giant goes live.
EURUSD – On Friday the euro formed yet another spinning top with the pair trading in less than a 100pip range. 1.29 remains the central level to move away from. The currency has come out of oversold territory on the RSI opening up the potential for further declines.
A re-test of the psychological al 1.30 seems likely before another move perhaps targeting 1.2750, the lows from April and July 2013.
GBPUSD – The pound did form a morning star (almost doji star) bullish reversal pattern on daily candles but has lost momentum since filling Monday’s gap. 1.60 is the big psychological level which coincides with the 61.8% retracement of the rally since July 2013 and a move below there could spell a new era of weakness for sterling.
EURGBP – The euro sterling cross has held 1.7940 in the last two days and has opened above the 21 day moving average but in current range bound conditions the trend indicator is fairly meaningless. The gap-fill suggests we may see another test of the low at 0.7890.
USDJPY –107.40 is the top so far just below 107.50 a potential sticking point from rising trendline connecting the May and Dec 2013 highs. The trend has been rampant and while overbought there is not yet any sign of momentum divergence. The former multi-year high at 105.45 could act as support on any larger pullbacks.
Equity market calls
- FTSE 100 is expected to open 24 points lower at 6,782
- DAXis expected to open 61 points lower at 9,590
- CAC 40 is expected to open 28 points lower at 4412,
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