· US Dollar May Rise if PCE, Income Data Cools Fed Rate Cut Bets
The US Dollar may extend gains against its major counterparts and at the expense of equity markets if critical data beats forecasts and undermines Fed easing expectations. The main report investors will be scrupulously monitoring is year-on-year core PCE data, a well-known favorite indicator of the Fed because it provides a clearer picture of underlying inflationary trends.
· EUR/USD has been grinding its way lower, hitting fresh two-year lows with every pip lost. The slow move may turn into an avalanche is critical support is lost.
The Technical Confluences Indicator is showing that EUR/USD has some support awaits at 1.0908, which is the convergence of the Bollinger-Band 1h-Lower, the BB 4h-Lower, and the previous 4h-low.
It is followed by 1.0886 – which is critical support. It is the meeting point of the Pivot Point one-month Support 1 and the PP 1w-S3.
Beyond this level, EUR/USD lacks noteworthy support until 1.0783, which is where the PP 1m-S2 meets the price.
Resistance awaits at 1.0942, where we see the confluence of the PP 12-S2, the BB 1d-Lower, and the Simple Moving Average 10-4h.
Further up, the next significant resistance area is between 1.0976 and 1.0988, where the previous weekly low, the PP 1d-R2, the PP 1w-S1, and the SMA 5-1d meet.
· Sterling slipped below $1.23 against the dollar after a Bank of England policymaker said the next move for the central bank could be a rate cut.
Speaking to local businesses in Northern England, Bank of England policymaker Michael Saunders said the U.K. could be looking at an interest rate cut if uncertainty around Brexit continues to persist.
The British currency slipped more than 0.4% against the dollar on the back of these comments to trade at $1.228. Sterling is down more than 3% since the start of the year and is down more than 1% since the U.K. voted to leave the European Union in June 2016.
· The euro held at its lowest level in more than two years on Friday as quarter-end rebalancing flows boosted demand for the dollar, with investors unfazed by the latest political news out of the United States.
The euro EUR=EBS fell 0.1% lower to $1.0904, its lowest level since May 2017. Against a basket of its rivals .DXY, the greenback pushed 0.1% higher to 99.27, its highest level in more than three weeks.
“Some corporate demand in the last few days seems to be boosting the dollar but our models show there should be net selling later in the day due to rebalancing flows,” said Manuel Oliveri, a currency strategist at Credit Agricole in London.
· Beijing has not only become a major defense spender, but increasingly analysts say China is also turning into a top arms exporter.
Over the past five years, China was one of the largest exporters along with the United States, Russia, France and Germany and China, according to data from the Stockholm International Peace Research Institute (SIPRI) published in March. Those nations accounted for three-quarters of the total volume of arms exported, the data showed.
China has exported 16.2 billion units of ammunition — mostly to countries in Asia, the Middle East and Africa — over the past 12 years, according to SIPRI data.
The “potential market” and “loose restrictions” in the developing world may make China “well positioned to become one of the world’s largest arms exporters,” said Timothy Heath, senior international defense researcher at California-based policy think tank RAND Corporation.
· China’s growing military might has replaced North Korean belligerence as the main security threat to Japan, Tokyo’s annual defense review indicated on Thursday, despite signs that Pyongyang could have nuclear-tipped ballistic missiles.
· No matter who takes the top job in Canada at the next elections, the new government will likely have to take a harder line on China, analysts say.
“Whoever is elected will have to take a tougher stance. Public opinion (in Canada) has shifted significantly against China’s favor,” said Lynette Ong, associate professor at the University of Toronto’s department of political science and Asian institute.
Canadians head to the polls on October 21 to elect a new federal government.
Opposition leader, the Conservative Party’s Andrew Scheer, is starting to pull ahead of incumbent Prime Minister Justin Trudeau, who is also the Liberal leader, some polls show.
· Russia and China appear to be increasing their economic, political and military ties amid poor relations with the West. But the relationship is far more nuanced than it first appears with strengths and weaknesses on both sides, experts note.
While U.S. trade relations with China have soured, as each slap billions of dollars’ worth of tariffs on each other’s goods, trade relations between China and Russia are blossoming. Chinese President Xi Jinping even called Russian President Vladimir Putin his “best friend” in an uncharacteristic display of warm relations during a state visit to Russia this summer.
Strengthening economic ties is a large part of warm Sino-Russia relations. Last week, Russian and Chinese news agencies reported that the two countries want to double their trade over the next five years, to $200 billion by 2024 — up from $107 billion worth of trade in 2018 — by implementing joint projects in fields of energy, industry and agriculture.
· Democrats are urging people who might have more information about President Donald Trump’s effort to persuade Ukraine to investigate political rival Joe Biden to come forward as Trump struggles to contain the fallout from the scandal.
· The profits of China's major industrial firms dropped 2 percent year on year in August, data from the National Bureau of Statistics (NBS) showed Friday.
The decline came after a 2.6 percent rise in July.
The decrease in August mainly resulted from the slowing growth in industrial production and sales, the expanding decline in the prices of industrial products, and other adverse factors like typhoons, said NBS senior statistician Zhu Hong.
In the first eight months, the profits of China's major industrial firms dropped 1.7 percent to 4.02 trillion yuan (567.28 billion U.S. dollars) and the decrease rate was the same as that in the first seven months.
Specifically, profits of state-owned industrial firms dropped 8.6 percent from one year earlier to 1.21 trillion yuan, while those of private ones gained 6.5 percent to 1.13 trillion yuan year on year in the first eight months.
· Oil prices fell on Friday as economic headwinds revived concerns of slowing global demand growth and a faster-than-expected recovery in Saudi crude oil output eased worries over potential major supply disruptions.
The International Energy Agency (IEA) said on Friday it may cut its growth estimates for global oil demand for 2019 and 2020, should the global economy weaken further.
Brent crude LCOc1 futures fell 55 cents, or 0.9%, from the previous session’s close to $62.19 a barrel by 0653 GMT.
U.S. West Texas Intermediate (WTI) crude futures CLc1 fell 30 cents, or 0.5%, to $56.11 a barrel.
Reference: Reuters, CNBC, FX Street
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