Shanghai composite index swings, GBP ends losing-streak

Global Markets

The China trade figures released overnight continued to highlight further weakness in the China economy, with both exports and imports declining. The continual decline in imports suggests that China is shifting away from an import dependent nation to one which is encouraging consumers to look more within the domestic market for its products and services. This change in approach will translate to further weakness for economies that have become dependent on demand from China.

The Shanghai Composite Index is acting indifferently once again today, oscillating between gains and losses. At the time of writing, the Shanghai Composite is trading +0.76% higher although the major market was trading over 1% lower just over an hour ago. The Nikkei 225 is trading in the red, while other Asian equities such as the Hang Seng and ASX200 have shown some positive gains as of writing. Market participants will now shift their focus towards the latest China inflation data on Thursday and if the announcement prints below the expectations of 1.9%, there will be further concerns of weakness in the China economy. As reiterated previously, any negative data will expose China markets to further periods of heavy pressure.

After being on the end of an extended losing streak against most it its counterparts, the GBP appreciated yesterday.

The Sterling gained versus all of its 16 major counterparts and while this could be a technical correction after such heavy pressure, investors are preparing for the Bank of England (BoE) monetary policy decision later in the week. A rate hike in September is extremely unlikely, but market participants will focus on the tone of the statement and any clues on when the central bank may begin to raise UK rates. In the last MPC vote, only Ian McCafferty decided it was time for an interest rate, if another member follows this pattern, then the GBP may gain across the board.

No one is expecting a UK rate rise this Thursday with benchmark interest rates almost guaranteed to be kept at 0.5%, where they have been for more than 6 months. Data from the UK has been robust but inflation needs to pick up, this is a necessary factor in increasing the likelihood of an interest rate hike by the BoE.

In the commodities division, Gold has sunken slightly lower. The global decline of commodities and steady appreciation of the USD continues to add pressure on this precious metal. If data from the United States this week is robust, then more pressure may be experienced for Gold which may trigger a selloff to the next relevant support at 1110.0. The major catalyst for a potential heavy selloff in Gold continues revolve around whether the Federal Reserve begin to raise US interest rates this year.

NZDUSD

Sentiment for the NZD remains bearish due to a combination of different reasons, such as the interest rate policy from the RBNZ and probability of downside economic pressures due to the events in china. The NZDUSD is bearish on the daily timeframe. As long as prices can keep below the 0.6500 resistance, a further decline to the 0.6050 support may be expected.

NZDJPY

The risk-off environment has provided the JPY with consistent strength. The NZDJPY is technically bearish on the daily timeframe. Prices are trading below the 20 SMA and the MACD has crossed to the downside. The breakdown below 76.50 may offer a route back to 72.00. A move back above 78.80 invalidates this daily bearish outlook.

NZDCAD

The NZDCAD is technically bearish on the daily timeframe. The 0.8350 may act as a light resistance which may open a path to the next relevant support at 0.8100. If prices trade back above 0.8450, this daily bearish outlook becomes invalidated.

NZDCHF

This pair is bearish on the daily timeframe, but currently ranges. Support can be found at 0.6050 and resistance can be found at 0.6250. A breakdown below the 0.6050 support may open a path to the 0.5700 level. A move back above 0.6250 invalidates this bearish outlook.

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Lukman Otunuga is a research analyst at FXTM