China’s abrupt rate cut renews concerns about its growth

Global Market

Market participants have been left bewildered as, despite a GDP growth of 6.9% in Q3, the People’s Bank of China (PBoC) has abruptly cut interest rates for the sixth time since November 2014. The Chinese government’s aggressive use of monetary policy to jumpstart the Chinese economy has had an adverse effect, with fears renewed about the pace of growth.

With economic weakness in China likely to drag into Q4, China Premier Li Keqiang has already stepped forward and educated participants that the 7% growth goal was never set in stone. The Chinese five year plan, which is currently being formulated by China’s top leadership, may play down growth targets for 2016-2020, since despite the vigorous efforts of the government the Chinese economy has failed to pick up.

The Euro has continued to decline across the global currency markets as a result of the European Central Bank’s (ECB) dovish stance towards the Eurozone. Sentiment remains bearish for the Euro as fears escalate of an economic slowdown in Europe following the deflationary CPI reading of -0.1% in September. Mario Draghi’s repeated statement about the ECB implementing additional stimulus measures if needed, as a tool to promote economic growth within Europe, has resulted in market participants increasing bets on further QE in the near future. As downwards pressures mount on the single currency, the EURUSD which is already technically bearish may be open to a steeper decline once prices breach past the psychological 1.1000 support.

A risk-off environment has punished the value of the Sterling for an extended period of time. The fears of a slowdown in economic momentum in the UK economy combined with a deflationary CPI release of -0.1% in October has opened the GBPUSD to further declines. Despite the bullish momentum gained in the Sterling last week Tuesday as a result of a hawkish BoE McCafferty highlighting the risks of delaying a rate rise in the UK, the GBPUSD remains technically bearish. If Tuesday’s latest GDP report for the UK economy fails to meet expectations and prints below 0.6%, not only will this provide additional signs of a slowing economic momentum in the UK economy, but it will also offer a strong reason as to why expectations for a UK interest rate hike will be pushed back into 2016.

EURUSD

The EURUSD is technically bearish on the daily timeframe. Prices are trading below the daily 20 SMA and the MACD has crossed to the downside. A breakdown below the 1.1000 support may open a path to the next relevant support at 1.0850.

GBPUSD

The GBPUSD is technically bearish on the daily timeframe. A breach below the 1.5300 support may open a path to the next relevant support at 1.5100.

USDCHF

The USDCHF is technically bullish on the daily timeframe. Prices have breached above the 20 and 200 daily SMA. The next relevant resistance is based at 0.9900.

AUDUSD

The AUDUSD is technically bullish on the daily timeframe. Prices are trading above the daily 20 SMA and the MACD has crossed to the upside. As long as prices can keep above 0.7150, there may be an incline to the next relevant resistance at 0.7380.

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