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  • Weekly Focus: the Rise of Yuan, Apple Show, Inflation in the U.S. and ECB Meeting

Weekly Focus: the Rise of Yuan, Apple Show, Inflation in the U.S. and ECB Meeting

This week is going to be tense with everyday interesting events. The beginning of the week was marked with important news too, including from the China’s central bank. 

Bank of Japan Governor Kazuo Ueda said the central bank could end its negative interest rate policy by the end of 2023. The Yen jumped 0.7% in the news. China’s central bank has warned speculators and issued forceful guidance to investors with its daily reference rate. It will take action to correct one-sided moves in the market whenever it’s needed and they are confident in keeping the yuan stable. The PBOC warning came a few hours after policymakers set a daily fixing that was stronger-than-expected by a record margin. Geopolitical ease from the meeting of the U.S. President Joe Biden and Chinese Premier Li Qiang in New Delhi supported by positive developments in China’s economy pushed Yuan up by 1.0% vs the U.S. Dollar. The Yen and some other currencies of the region also expanded their gains to the Greenback.

Negative sentiment towards China’s economy is fading, as investors believe it is on the recovery path. The S&P 500 broad market index advanced by 0.5% to 4480 points despite Apple troubles in China. Apple will present new iPhone 15, new Apple watch and likely a new type-C charger. It is hard to guess how Apple stocks will react on the event considering company’s misadventures in China, but the presentation itself is usually used for the profit taking, and not for addition buying.

August inflation in the United States is expected to rise to 3.6% YoY from 3.2% in July, which is logical considering fuel prices increase by 20% in the last two months. In contrary, Core PCE, excluding energy and food prices, may slow down to 4.3% YoY from 4.7% in the previous month. The latter indicator is more important for the Federal Reserve (Fed) for its monetary policy decisions. 

The European Central Bank (ECB) will decide on its interest rates this Thursday. It is hard to predict what this decision will be, but it will be certainly very important for the market. It bears a great uncertainty too. 

Retail sales in August in the United States are expected to drop to 0.2% MoM from 0.7% in July, while producer prices are seen marginally up. This information is unlikely to have an effect on the market, as they are priced in already.

Overall, the market picture this week is seen positive with China on the recovery path, U.S. consumer segment is cooling down to drag inflation down too. That is easing risk of interest rates hike by the Fed, and may result in rising stock indexes, and higher crude prices with lower Greenback this week.

Technically, the S&P 500 index upside formation is unchanged with a primary target at 4700-4800 points. The index is traded below the resistance at 4510-4530 points. It may go higher and reverse towards 4610-4630 points. 

Brent crude prices are moving towards the resistance at $92.00-94.00 per barrel after a breakthrough of $83.00-85.00 per barrel. If prices would dive below $83.00 a primary downside scenario with a support at $74.00-76.00 per barrel will be initiated. If prices would fell below $74 per barrel a recession scenario with targets at $64-66 per barrel of Brent crude will be the option. 

Gold prices are moving inside the mid-term upside formation with targets at $2000-2100 per troy ounce that have already been met. But, the situation has changed dramatically as the important support level of $1980-2000 per ounce was smashed. The nearest support is set at $1890-1910 per ounce. Prices are constantly visiting it, which may eventually result in a downside. In this scenario it would be better to wait for a retest of this level before opening short positions.

The Greenback is correcting. A long trade with a small amount for GBPUSD from 1.25500 with a target at 1.26300-1.26400 could be interesting. The long trade in the AUDUSD from 0.63800-0.64000 with a target at 0.66500 and the stop-loss at 0.63200 is still open.