Weekly Focus: Airily September Rally

The first week of September started on the optimistic note after Hang Seng added 2.6%, offshore Yuan gained 0.2% against the U.S. Dollar. All these positive developments came after a confirmation of the cooling U.S. labour market last Friday, and improving of China’s economy.

Stimulus measures by China’s authorities are seen more like a “drip watering” of the economic ground. Investors have a positive sentiment towards these measures in the property sector in China so far, but a broad-based economic recovery could require much more stimulus. 

Otherwise, the cooling of the U.S. economy is setting positive tunes globally. The most important development is the rise of unemployment level to 3.8%, the highest since February 2022. The U.S. economy is seen cooling rapidly that signal the Federal Reserve (Fed) to terminate its interest rates hike cycle. CME FedWatch Tool estimate the increase of the interest rates by 0.25% this September as a 7.0% possibility, while investors do not believe the rates will be increased in November and December 2023, with the probability of 34% and 32% respectively. Without any headwinds from the oil market that could promote higher inflation the Fed is likely to finish with interest rates hikes. This could not be said about the European Central Bank (ECB) and Bank of England (BoE), which have to fight high inflation at 5.3% in the Eurozone and 6.8% in the United Kingdom compared to 3.2% in the United States.

The ECB will hold its meeting on September 14. Any hawkish move by the ECB is likely to weaken the U.S. Dollar. Its president Christine Lagarde may verbally help the single currency to strengthen if any interest rates hike comments would be delivered this week. This is a good news for risky assets, especially if the Chinese economy will delivery strong numbers on PMI and trade for August. Then this September has a chance to break a usually negative trend for the month (stocks have more chances to finish September by 0.7% down in average). So, we may expect a rally in the stock market for the first two week of this month.

Technically, the S&P 500 index formation has changed to the upside with a primary target at 4700-4800 points. If the index would hold above 4510-4530 points the next target at 4610-4630 would become available. The short trade for the index initiated at 4520 points was closed with a zero profit to avoid unnecessary risks.

Brent crude prices broke through the resistance at $83.00-85.00 per barrel. Now they are moving towards $93.00-95.00 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. The resent jump of prices to $1940-1950 per ounce doesn’t seen sustainable. So it would be better to be prepared for a downside, and opening short positions after a downside breakthrough of the support and retest of it.

The Greenback performs a rather strange strengthening after a weak U.S. labour market report last Friday. It could be considered as a false move, and the U.S. Dollar is seen continue its downside correction in the next two weeks. This correction would be confirmed by a drop of the U.S. dollar index by 1.4% or more this week. A risky long trade with a small amount for GBPUSD from 1.27200-1.27400 with a target at 1.29400-1.29600, and the stop-loss at 1.25300 is intact. A long trade in the AUDUSD from 0.63800-0.64000 with a target at 0.66500 and the stop-loss at 0.63200 is also open.

If these trades will be successful, a further weakening of the Greenback could be expected. It would be better to wait for a decline of the EURUSD below 1.05000 to seek out sell opportunities for the Greenback in this regard.