Comprehensive USD/CNH Analysis for September 22, 2023

In this comprehensive analysis, Ultima Markets brings you an insightful breakdown of the USD/CNH for 22nd September 2023.

Key Takeaways

The Federal Reserve’s Decision: In September, the Federal Reserve made a pivotal decision to halt interest rate hikes. The dot plot hints at the possibility of future rate increases.

Furthermore, the overall monetary policy for the upcoming year leans towards a more hawkish stance, with a shift from an anticipated 5 interest rate cuts to just 2.

These factors collectively maintain the US dollar’s dominance, momentarily placing non-US currencies at a disadvantage.

USD/CNH Technical Analysis

USD/CNH Daily Chart Signals

(Daily chart of USD/CNH, source: Ultima Markets MT4) 

Rebound and Candle Pattern: Our analysis of the daily chart reveals an interesting rebound in the USD/CNH pair after reaching the 33-day moving average.

This rebound pattern closely resembles a head and shoulders candle formation. This chart development signifies a potential right shoulder formation.

USD/CNH 4-Hour Chart Dynamics

(4-hour chart of USD/CNH, source: Ultima Markets MT4) 

Rebound Magnitude: Transitioning to the 4-hour chart, we observe that the recent rebound of USD/CNH has reached a significant level, approximately 1.618 times the rebound height recorded on September 14.

It is vital to keep a close watch on market movement below the 65-period moving average to gain insights into the conclusion of the market rebound.

Insights from the 1-Hour Chart

（1-hour chart of USD/CNH, source: Ultima Markets MT4) 

Equilibrium in the Market: On the 1-hour chart, the moving average remains a pivotal support for the market.

The stochastic oscillator hovers around the middle area at 50, indicating an equilibrium between bullish and bearish sentiments.

To confirm the initiation of short positions, a market movement below the moving average group is crucial.

Ultima Markets Pivot Indicator

(1-hour chart of USD/CNH, source: Ultima Markets MT4) 

Key Price Level: According to the pivot indicator in Ultima Markets MT4, the central price for the day stands at 7.31286.

A bullish sentiment prevails above this level, with the first target at 7.32288 and the second target at 7.33139.

Conversely, a bearish stance is favored below 7.31286, with the first target at 7.30435 and the second target at 7.29450.

Conclusion

For investors investing in China’s A-shares, the performance of China’s stock market so far this year has only been slightly impressive at the beginning of the year. However, as China’s economic recovery gradually falls short of expectations, and the exchange rate of CNY/USD continues to fall, the performance of A-shares has also declined. Although there are frequent rumors in the market that China will launch large-scale stimulus, it turns out there is always loud thunder but little rain. 

On August 27, the China Securities Regulatory Commission finally introduced a series of favorable policies such as halving stamp. However, at the opening of the next day, the three major A-share stock indexes only rose for a short period of about 1 minute, then fell back one after another. As a result, many Chinese netizens commented: “I’m optimistic about the fate of the country but choose to bet on the Nasdaq.” 

In today’s turbulent international political and economic situation, can China’s A-shares break out of the siege and turn the tide? This article will take you to find out. 

Why the large stimulus isn’t coming? 

In addition to the need to wait for the RMB exchange rate to strengthen, whether China can introduce large-scale stimulus measures is also an important factor in the strength of the A-shares market. However, it seems that China is quite conservative about the introduction of stimulus measures. Not only is the intensity of the stimulus measures currently introduced not large, but the speed of introduction is as fast as squeezing out toothpaste, and China has not shown that it plans to launch large-scale stimulus. 

On September 15, the People’s Bank of China decided to lower the deposit reserve ratio of financial institutions by 0.25 percentage points for the second time this year. Although it lowered the required reserve ratio, it did not lower interest rates. Therefore, the market reaction was also calm. In the end, the Shanghai Composite Index even closed down 0.28% that day. It can be seen that the so-called rescue efforts obviously did not meet market expectations. 

So here comes the question. Since the market now knows that large-scale stimulus will likely solve the current predicament of A-shares, why is there still no such stimulus? 

Just in mid-August, Ray Dalio, the founder of Bridgewater Associates, the world’s largest hedge fund, publicly stated that China is in urgent need of reducing leverage. His remarks may explain why China has been slow to introduce large stimulus policies. As we all know, debt is a double-edged sword. When maintained at the right level, it can provide upward momentum for national economic growth. However, once the critical threshold is exceeded, debt will undoubtedly have a negative impact on the economy. 

In fact, as early as a few years ago, China had begun to continuously publicize that it would embark on a “road to deleveraging.” In 2018, China’s macro leverage ratio was about 240%. However, in recent years, with the outbreak of the epidemic and changes in the economic situation, the leverage ratio has not only not declined, but has risen to about 280%. Therefore, although large-scale stimulus policies are almost the only prescription to boost China’s stock market in the short term, China will obviously remain cautious about stimulus policies under the urgent need to reduce leverage. 

China’s leverage ratio has remained high for several years. 

Can A-shares get better in the future? 

Since it is difficult to implement stimulus measures on a large scale at the moment, does this mean that A-shares are hopeless? Whenever this happens, you will definitely hear some so-called stock commentators say: “Although A-shares are under pressure in the short term, their long-term fundamentals are good.” In our opinion, such similar remarks are probably just half true. Although A-shares are under pressure in the short term, their long-term fundamentals may not be completely positive. 

Why? To answer this question, we must start with the composition of A-shares. 

If we talk about the market capitalization leaders or star stocks in A-shares, investors may first think of consumer or financial banking stocks such as Kweichow Moutai, Ping An, and Industrial and Commercial Bank of China. Correspondingly, when talking about the leading stars of the US stock market, Apple, Tesla, Nvidia, Amazon, etc. may come to mind, but these companies basically belong to the technology industry. 

In fact, this stereotype aligns with the current status of the A-share and US stock markets. Let’s take the FTSE China A50 Index (composed of the top 50 A-share stocks by market capitalization) as an example. The figure below shows that among the top 50 stocks by market capitalization, the financial industry accounts for 28.25%, and the core consumer industry accounts for 30.77%. These two major industries undoubtedly occupy the majority. 

Breakdown of industries in FTSE A50 Index 

But the problem lies precisely with these two industries. The first is the consumer industry. Since China has continued to show a “consumption downturn” this year, the consumer industry will naturally bear the brunt of the impact. This can also be reflected in the rise and fall of CPI (Consumer Price Index). As can be seen from the chart below, since entering 2023, China’s CPI trend, if not a recessionary trend, has at least shown a sideways trend. And this is naturally not good news for the core consumer industry. Consumption needs a trend toward inflation to realize that consumer prices can rise, allowing relevant companies to reap higher profits. But once the consumption level falls into a sideways situation, the relevant company’s growth expectations will naturally be greatly restricted. 

Rise and fall of China’s CPI in the past year. 

Then, let’s talk about the financial industry. Financial stocks in China’s A-share market are actually mainly banking stocks such as China Merchants Bank, Industrial and Commercial Bank of China, and Agricultural Bank of China. In the current economic environment in China, the growth expectations of bank stocks are subject to a key factor, which is net interest margin. The so-called net interest margin refers to the ratio of the bank’s net interest income to the bank’s total interest-earning assets. To put it simply, the net interest margin is equivalent to the profit margin of the banking industry. The higher the net interest margin, the higher the bank’s profitability and vice versa. 

The chart below shows the net interest margin trend of China’s banking industry since 2011. As can be seen from the figure, the net interest margin of China’s banking industry has shown a clear downward trend in the past 10 years. And this is naturally not a good thing for banks that rely on net interest margins to make profits. 

Trend of net interest margin of China’s banking industry since 2011. 

All in all, the current market structure of A-shares is basically dominated by the consumer industry and the financial and banking industries, and such a market structure is unable to support a higher market value. If A-shares really want to rival U.S. stocks in the future and achieve a long-term bull market, they will inevitably need to let their leading market value companies gradually shift to high-value-added industries such as the technology industry or the medical industry. Only by allowing these industries to take a dominant position can A-shares truly achieve “good long-term fundamentals.” 

Breakdown of industries of shares in S&P 500 Index 

When the A-shares markets can rebound? 

So can A-shares make those high-value-added technology industries the market capitalization leaders in the future? Combined with the continuous technological blockade imposed by the United States and other Western countries on China in recent years, it seems that there is little hope of achieving this goal. But what is surprising is that Huawei, which has been subject to US technology sanctions for four years, suddenly released the latest Mate 60 series mobile phones in a low-key manner without any publicity and promotion. Confirmed by Bloomberg News, its SoC adopts the 7nm process and is manufactured by SMIC. For China’s technology industry, this is undoubtedly the first glimmer of light after a long dark night. The blue line in the figure below represents the trend of SMIC share price in the Hong Kong stock market in the past month, while the orange line represents the trend of the Shanghai Composite Index during the same period. 

The comparison of SMIC and Shanghai Composite Index in the past month 

As we all know, China’s rapid economic development in the past two decades began with the real estate economy led by land finance. In combination with the foreign trade export industry, which was originally labor-intensive, it also created jobs for the city, thereby promoting urbanization development. However, as the international economic situation has become more turbulent in recent years, the demand for imported goods from China to developed countries such as Europe and the United States has continued to decline. The export-oriented export industries in the past have been hit first, which in turn has reduced urban employment, thus further accelerating the growth of China’s real estate industry.  

Therefore, given China’s current economic situation, continuing to follow the old path of land finance or mid- to low-end foreign trade exports is definitely not a long-term option. If China wants to reverse its current sluggish economy and A-share dilemma, industrial upgrading is the only way. Because in the macro division of labor in the international industrial chain, using the so-called cheap demographic dividend to develop foreign trade OEM production is inherently the lowest-profit link. Only by occupying high-end links such as R&D and design and changing China’s current position in the international industrial chain can it bring more income to the overall economy and individual consumers. Only when incomes begin to truly increase and people’s expectations for the future improve, will China’s economy and the A-share market truly improve. 

Summary 

• The Chinese market needs large-scale stimulus in the short term, but the large stimulus will not be conducive to long-term development. Therefore, the current stimulus measures introduced by China are relatively restrained, and the actual intensity is not particularly large. 
• Since the current industry structure of the A-share market is mainly focused on finance banking or consumption, and lacks high-value-added industries, it is impossible to essentially improve the long-term market conditions of A-shares. 

• Only by accelerating industrial upgrading can fundamentals of A-shares market truly improve in the future. 

Disclaimer 

The comments, news, research, analyses, prices, and all information contained in this article can only be regarded as general information and are provided only to help readers understand the market situation and do not constitute investment advice. Ultima Markets has taken reasonable steps to provide up-to-date information, but cannot guarantee the accuracy and may modify without notice. Ultima Markets will not be responsible for any loss incurred due to the application of the information provided. 

Comprehensive AUD/USD Analysis for September 21, 2023

In this comprehensive analysis, Ultima Markets brings you an insightful breakdown of the AUD/USD for 21st September 2023.

Key Takeaways

Federal Reserve’s Monetary Policy: Key to understanding this dynamic currency pair is the recent decision by the Federal Reserve.

In September, they opted to halt interest rate hikes. Notably, the dot plot still indicates the potential for rate increases later in the year.

Looking ahead, the monetary policy for the following year leans towards a more hawkish stance, with the likelihood of a shift from 5 interest rate cuts to just 2.

These developments have bolstered the US dollar, placing non-US currencies at a short-term disadvantage.

AUD/USD Technical Analysis

Understanding the technical aspects of AUD/USD is paramount for making informed trading decisions. Here, we provide an exhaustive analysis of the charts, offering a comprehensive view of the current scenario.

AUD/USD Daily Chart Analysis

( Daily chart of AUD/USD, source: Ultima Markets MT4) 

The daily chart reveals a noteworthy pin bar formation in the Australian dollar against the US dollar, following contact with the 33-day moving average.

This development carries significance, particularly given the robust position of the US dollar, which may exert further downward pressure on the exchange rate.

Analyzing the AUD/USD 4-Hour Chart

(4-hour chart of AUD/USD, source: Ultima Markets MT4) 

Structurally, the market has formed a platform corrective wave, indicating a probability of the ongoing downward trend.

This insight is invaluable for anticipating market dynamics and making well-informed trading decisions.

Ultima Markets Pivot Indicator

(1-hour chart of AUD/USD, source: Ultima Markets MT4) 

Ultima Markets MT4’s pivot indicator places the central price for the day at 0.64657. To assist your trading strategies, we outline bullish and bearish scenarios:

Bullish above 0.64657, targeting 0.64926 as the first objective and 0.65377 as the second.

Bearish below 0.64657, with the initial target set at 0.64216 and the subsequent target at 0.63949.

Conclusion

Focus on EUR/USD today. 

Fundamentally, the Federal Reserve will announce its latest interest rate decision, and it is basically a certainty that interest rates will remain unchanged. However, since the Federal Reserve will also release its latest Summary of Economic Predictions(SEP), the dot plot is the focus of the market’s attention.  

The most debated question right now is whether the Fed will raise interest rates by the end of the year, and whether the monetary policy in 2024 will change the stance taken in June and a more conservative interest rate path will be adopted. These all affect the direction of the U.S. dollar index. If the Federal Reserve changes its stance on interest rate cuts in 2024, the U.S. dollar index will fall significantly. Otherwise, the U.S. dollar index will further break through the high point. 

Technically, although the stochastic oscillator has crossed upward on the daily chart, the exchange rate has always been suppressed by the 5-day moving average, and the market is more likely to form a consolidation range. 

( Daily chart of EUR/USD, source: Ultima Markets MT4) 

The candle bar yesterday was a pin bar, so the structure today is more important. If it breaks through yesterday’s high, the market’s rebound space will further look closer to the 200-day moving average; if a large physical candle bar closes today, the exchange rate may fall further. 

(4-hour chart of EUR/USD, source: Ultima Markets MT4) 

On the 4-hour chart, after the market hit the resistance area composed of the 65-day moving average and the 33-day moving average, the stochastic oscillator began to cross downward. Structurally, the EURUSD has formed a relatively clear rising flag-shaped consolidation area, and there is a certain probability that the short trend will continue after falling below it. 

(1-hour chart of EUR/USD, source: Ultima Markets MT4) 

If you look at the 1-hour chart structure, you will find it is clearer. As the stochastic oscillator remains in oversold territory, the Asian session may remain consolidated. You need to wait patiently for the price to fall below yesterday’s low and the lower edge of the flag channel, and then switch to a smaller cycle to look for intraday entry opportunities.

(1-hour chart of EUR/USD, source: Ultima Markets MT4) 

According to the pivot indicator in Ultima Markets MT4, the central price of the day is 1.06908. 

Bullish above 1.06908, first target 1.07063, second target 1.07334 

Bearish below 1.06908, first target 1.06635, second target 1.06477 

Disclaimer 

Comments, news, research, analysis, prices and other information contained in this article can only be regarded as general market information, provided only to help readers understand the market situation, and do not constitute investment advice. Ultima Markets will not be responsible for any loss or loss (including but not limited to any loss of profits) that may arise from the direct or indirect use or reliance on such information. 

Focus on XAU/USD today. 

Fundamentally, there has been a large divergence between China’s domestic gold prices and international gold prices recently, but the bullish drive for domestic gold is mostly due to the depreciation of the local currency and the impact of restrictions on gold imports. It is difficult for international gold prices to be driven by this, but as the monetary policies of various countries come to an end, in line with expectations of falling inflation and economic downturn, international gold prices have certain upward momentum. At present, the market still needs a stimulus to allow gold prices to start a long-term bull trend again. 

Technically, the cross of the stochastic oscillator on the gold daily chart has been established, suggesting the arrival of a bullish trend. 

( Daily chart of XAU/USD, source: Ultima Markets MT4) 

The market has ushered in a rebound trend since it hit the 200-day moving average last Thursday. However, it is worth noting that the top is about to hit the downward trend line, and the remaining rebound space is relatively narrow. 

(4-hour chart of XAU/USD, source: Ultima Markets MT4) 

On the 4-hour chart, the stochastic oscillator has entered the overbought zone, suggesting that potential gold bulls may be blocked. However, judging from the chart, after the market hit the 200-period moving average, the large entity of candle bar broke through the consolidation range since last Friday, and there is a high probability that the bullish trend will continue in the Asian session.

 (1-hour chart of XAU/USD, source: Ultima Markets MT4) 

According to the pivot indicator in Ultima Markets MT4, the central price of the day was 1930.16. 

Bullish above 1930.16, the first target is 1937.62, and the second target is 1941.74 

Bearish below 1930.16, first target 1925.98, second target 1918.40 

Disclaimer 

Comments, news, research, analysis, prices and other information contained in this article can only be regarded as general market information, provided only to help readers understand the market situation, and do not constitute investment advice. Ultima Markets will not be responsible for any loss or loss (including but not limited to any loss of profits) that may arise from the direct or indirect use or reliance on such information. 

Focus on USD/CAD today. 

Fundamentally, the continued rise in oil prices this week has driven market demand for the Canadian dollar and promoted the appreciation of the Canadian dollar. This has also made the implementation of the Bank of Canada’s monetary policy more difficult to a certain extent. In the short term, oil prices affect the appreciation trend of the Canadian dollar. However, as Canada’s real per capita GDP shrank year-on-year in the second quarter, the unemployment rate began to rise in May, and coupled with the continued drag on mortgage loan renewals, Canada’s price level may go downward. Therefore, if there are no unexpected changes in supply and demand in the crude oil market, it may be difficult to change the Bank of Canada’s stance of keeping interest rates unchanged at the October meeting.

Technically, the downward trend line on the weekly chart of USD/CAD effectively prevents the exchange rate from rising further. After encountering resistance last week, it has entered a downward trend this week. However, the stochastic oscillator has a clear short signal, and we need to wait for the final closing today. 

(Weekly chart of USD/CAD, source: Ultima Markets MT4) 

The market has started an upward trend since hitting the 200-week moving average in mid-August. Based on the complete five-wave structure of the entire upward trend, the current decline is temporarily judged to be an adjustment structure of the previous upward trend. After sufficient adjustment, the Canadian dollar may further depreciate. 

(Daily chart of USD/CAD, source: Ultima Markets MT4) 

On the daily chart, the rate has reached a very critical support position against the Canadian dollar. The market finally retreated after the stochastic oscillator signaled a double divergence. At present, it has fallen to near the 33-day moving average. The clear top structure means that the current support position is a strong resistance area, and bulls may usher in a “counterattack” in this area during the day. 

(1-hour chart of USD/CAD, source: Ultima Markets MT4) 

On the 1-hour chart, the oscillator also sent out a bottom divergence signal yesterday, and the market is likely to consolidate or rebound in the short term. If the market breaks through 1.35173 during the Asian session, traders can focus on rebound trading opportunities during the day. The first target is around the red 65 moving average. 

(1-hour chart of USD/CAD, source: Ultima Markets MT4) 

According to the pivot indicator in Ultima Markets MT4, the central price of the day was 1.35173. 

Bullish above 1.35173, the first target is 1.35422, the second target is 1.35789 

Bearish below 1.35173, first target 1.34816, second target 1.34570 

Disclaimer 

Comments, news, research, analysis, prices and other information contained in this article can only be regarded as general market information, provided only to help readers understand the market situation, and do not constitute investment advice. Ultima Markets will not be responsible for any loss or loss (including but not limited to any loss of profits) that may arise from the direct or indirect use or reliance on such information. 

Focus on EUR/USD today. 

Fundamentally, Traders will pay more attention to European Central Bank interest rate decision tonight. As the Eurozone’s second-quarter GDP growth rate dropped from 0.3% to 0.1%, the latest PMI data also showed that economic activity in the service industry and manufacturing industry shrank intensified in August. The sluggish economy coupled with high inflation and the haze of stagflation make interest rate decision of the European Central Bank full of suspense. If the European Central Bank chooses to pause interest rate hikes for the first time in this year,  without additional hawkish comments, the euro may fall further against the dollar. 

Technically, the euro’s short trend has temporarily gained the upper hand on daily chart. The 200-day moving average has been exceeded, the exchange rate is completely below the 200-day moving average, and the 33-day moving average and the 65-day moving average have also formed a dead cross downward. 

( Daily chart of EUR/USD, source: Ultima Markets MT4) 

It is worth noting that when the short-term moving average group is close to the 200-day moving average, the market is likely to fluctuate. A complete short trend requires waiting for the short-term moving average group to fall below the 200-day moving average as well. Therefore, although the market started to rise this week, it is currently judged to be a rebound, and the rebound is weak. 

(4-hour chart of EUR/USD, source: Ultima Markets MT4) 

On the 4-hour chart, the overlap between 1.07665 and the 65-period moving average is a strong resistance area, and the market failed to break through twice. Before the market completely rises above this resistance, the power of shorts will always be slightly stronger than that of bulls. 

(1-hour chart of EUR/USD, source: Ultima Markets MT4) 

On the 1-hour chart, the flag-shaped area is still in progress. For trading opportunities, traders need to wait for the signal of the stochastic oscillator, or the market falls below the previous low. 

(1-hour chart of EUR/USD, source: Ultima Markets MT4) 

According to the pivot indicator in Ultima Markets MT4, the central price of the day was 1.07351. 

Bullish above 1.07351, first target 1.07595, second target 1.07893 

Bearish below 1.07351, first target is 1.07056, second target is 1.06813 

Disclaimer 

Comments, news, research, analysis, prices and other information contained in this article can only be regarded as general market information, provided only to help readers understand the market situation, and do not constitute investment advice. Ultima Markets will not be responsible for any loss or loss (including but not limited to any loss of profits) that may arise from the direct or indirect use or reliance on such information. 

As a mouthpiece of the Fed, the Jackson Hole Economic Symposium always attracts the eyeballs of numerous investors. Considering the current turbulent global economic situation, this year’s meeting is undoubtedly eye-catching. The three-day symposium officially ended in August, and the speeches of renowned financial names captured the world’s attention. 

This article is going to unriddle hidden messages in speeches and help you get insight into future investment trends. 

Fed message iterated and no rate cuts in sight  

The spotlight at the meeting was the speech by Federal Reserve Chairman Jerome Powell. He patiently reiterated the importance of U.S. interest rate decisions on inflation: “The Federal Reserve’s responsibility is to reduce inflation to the 2% target. Although inflation has fallen from highs, it is considered too steep. The Fed will be prepared to raise interest rates further if necessary and keep restrictive policies going until it is confident that inflation will fall sustainably toward the target. ” From the words, the Fed still attaches great importance to achieving the inflation target, and it also greatly dispels market expectations for interest rate cuts.    

Inflation downtrend becoming stagnant 

Judging from the figures released, although the economy has slowed down somewhat, consumption seemingly remains intact. After falling from highs, price levels have entered a stagnant state. This phenomenon will undoubtedly arouse market concerns in the high-interest rate environment. The U.S. Department of Commerce reported on July 28th that the personal consumption expenditures (PCE) index increased by 3.0% year-on-year in June, slightly lower than market expectations of 3.1%. Food and energy prices are susceptible to fluctuations due to global factors, which may send misleading signals to the inflation outlook. Therefore, the Fed focuses more on core PCE inflation. Excluding food and energy prices, core PCE increased by 4.1% year-on-year in June, which was lower than market expectations of 4.2% and 4.6% of the previous value, the smallest increase since September 2021. The U.S. Department of Commerce announced on August 31 that PCE increased by 3.3% annually in July, in line with market expectations. The core PCE increased by 4.2% year-on-year in July, slightly higher than the 4.1% in June, but in line with market expectations.  

(Core Personal Consumption Expenditure PCE Index, Investing.com) 

Resilient labor market 

In addition, the job market continues to remain resilient, indicating that the U.S. economy not heading for a recession. However, inflation seems to be difficult to decline further as a result. The U.S. Department of Labor announced that nonfarm payroll increased by 187,000 in July, slightly lower than market estimates of 200,000. Although the number missed expectations, it actually went up from the downward revision of 185,000 in June. The unemployment rate was 3.5%, while the market consensus expected the unemployment rate to remain stable at 3.6%. The unemployment rate is slightly higher than the lowest level since late 1969. The average hourly wages, the Fed’s compass for inflation, rose 0.4% for the month and at an annual rate of 4.4%. Both figures were 0.3% and 4.2% higher than their respective forecasts.  

Consult history when observing reality, Reality does not exist without history

As we look for today’s answer from history, it is not difficult to discover the Fed’s concerns and why the chairman often adopts a reserved tone in his remarks. The long-run quantitative easing policy has made people accustomed to the low-interest environment. How did people deal with inflation? Is there a period in history that matches the present so that we can find clues? From the comparison of the diagram below, we can see that the yellow curve, representing CPI from 2013 to 2023, closely replicates the one dated 1966 to 1976 (blue line), with inflation rising sharply and then cooling down after being controlled. When the time sequence entered the late 1970s, the revolution in Iran caused tension in the oil market, and inflation soon reignited. The international crude oil price soared from about $15 per barrel in 1979 to doubling to $ 39 in February 1981. Price levels went skyrocketed. The late 70s CPI soared higher than the peak in 1974-75! Now, OPEC+ allies are implementing a voluntary production reduction policy until the end of the year in an attempt to deepen their operations in the oil market. As expected, oil prices have reached the year-to-date high of $90 per barrel at the beginning of autumn. Although economic data show inflation has cooled, history tells us it is hard to defeat. The oil cuts have fostered uncertainties on the path to winning the inflation battle. The Federal Reserve must stay alert and respond fast. Whenever there is an overly optimistic atmosphere in the market, the Federal Reserve will release a hawkish message to suppress it, conveying that interest rates must remain high and last longer. Its verbal warning works best when the global economic environment is fragile.  

(US CPI YoY%, 1966-1982 Blue Line V.S. 2013-2023 Yellow Line) 

Natural rate of interest possibly rises over time  

The natural rate of interest (r-star) has recently become a popularly debated topic among Fed officials, and some officials believe the neutral rate of interest might have gone up. The r-star is the real interest rate set by the central bank to keep the economy operating at full employment and price stability. Simply saying, at the neutral interest rate, the economy is neither expanding nor contracting. According to data from the Federal Reserve Bank of New York, r-star has been between 2.0% and 3.5% from 2000 to 2009 and remained near 1.0% since then. The Federal Reserve Bank of New York estimates that the current r-star hovers between 0% and 0.5%. Without the monetary easing policy, the U.S. economy seems to be intact and still running well in a relatively high interest-rate environment. Does this mean that the neutral interest rate has already quietly rebounded? However, the neutral interest rate has always been an abstract observation tool, which is not easy to measure and can only be reviewed after the fact occurs. With the uprise of the new economy and geopolitical risks, the Federal Reserve’s mission has become more complex, and monetary policy must become innovative and not limited to interest rate setting. What is certain is that the market’s desire to return to the ultra-low interest times of the past no longer exists.  

(Natural rate of interest r-star, Fed NY)  

Summary 

As Powell said, the Fed still needs to work harder to bring inflation down to 2% sustainably, and this may require two conditions: A period of low economic growth and a cooling labor market. Speaking of economic growth, GDP growth in 1H23 is higher than the long-term trend, and recent consumption data has also been particularly strong. As for the labor market, it has been rebalancing over the past year.  

Therefore, monetary policy needs to remain flexible. It is expected that interest rates will be raised again in September or November, while the interest rate cut expected by the market may have to wait until the second half of 2024. According to FedWatch, CME Group’s interest rate forecast tool, after Jackson Hole, the probability that the Fed will not raise interest rates in September has risen to 88.5%. Certainly, we cannot rule out the possibility that unexpected situations may occur, resulting in the Fed eventually raising interest rates in September.  

Disclaimer 

The comments, news, research, analyses, prices, and all information contained in this article can only be regarded as general information and are provided only to help readers understand the market situation and do not constitute investment advice. Ultima Markets has taken reasonable steps to provide up-to-date information, but cannot guarantee the accuracy and may modify without notice. Ultima Markets will not be responsible for any loss incurred due to the application of the information provided. 

Focus on Brent Oil today. 

Fundamentally, with OPEC and EIA predicting that production cuts will tighten the market in the coming months, Brent crude oil has finally returned to above $90. The International Energy Agency will also release its monthly report today, which is expected to provide more clues to market conditions. The market focuses on whether the report also emphasizes that crude oil production will tighten supply for the rest of this year. 

Technically, the stochastic oscillation in daily chart has once again risen with a golden cross, indicating the arrival of bulls. The moving average group also raised their heads to support the market’s further upward trend. 

( Daily chart of Brent Oil, source: Ultima Markets MT4) 

There is currently no moving average suppression above crude oil, and there is little resistance for bulls. Although the current signal of the stochastic oscillator occurs in the overbought area, judging from the chart, even if the market declines again, it will still have the support of the moving average group. 

(1-hour chart of Brent Oil, source: Ultima Markets MT4) 

On the 1-hour period, crude oil finally broke through resistance and moved upward yesterday after oscillating for nearly 5 trading days. At present, the stochastic oscillator crosses downwards, and the market has a potential adjustment probability in the Asian market. Priority is given to the resistance level for breakthroughs. After waiting for the stochastic oscillator to cross again, traders can pay attention to the long entry opportunities. 

(1-hour chart of Brent Oil, source: Ultima Markets MT4) 

According to the pivot indicator in Ultima Markets MT4, the central price of the day was 91.892. 

Bullish above 91.892, first target 93.001, second target 93.733 

Bearish below 91.892, first target is 91.128, second target is 89.995 

Disclaimer 

Comments, news, research, analysis, prices and other information contained in this article can only be regarded as general market information, provided only to help readers understand the market situation, and do not constitute investment advice. Ultima Markets will not be responsible for any loss or loss (including but not limited to any loss of profits) that may arise from the direct or indirect use or reliance on such information. 

Focus on GBP/USD today. 

Fundamentally, UK is to release its latest August unemployment data on Tuesday. The previous PMI final value data for the manufacturing industry confirmed a downward trend, shrinking for the sixth consecutive month. If the job market shows weakness as well, although inflationary pressure decreases, the outlook for the UK economy may be interpreted as sluggish by the market. 

Technically, it can be observed from the weekly chart of the pound that although the random volatility indicator is still in a downward trend, the market is still trapped in the volatility range of the moving average group. 

( Weekly chart of GBP/USD, source: Ultima Markets MT4) 

The 5-week moving average suppressed the rebound in the exchange rate, while the 33-week and 65-week moving averages supported further downward movements in the market. There is still a possibility of further volatility in the market this week. 

(Daily chart of GBP/USD, source: Ultima Markets MT4) 

The short forces on the copper daily chart temporarily have the upper hand. The stochastic oscillator crosses downwards. Since the downward trend since early August has been a downward motive wave, there is a certain probability that the recent decline will continue the extended downward trend. 

(1-hour chart of GBP/USD, source: Ultima Markets MT4) 

On the daily chart, yesterday’s rebound in the market led to a random volatility indicator sending out a bullish signal, but due to yesterday’s K line being only a cross star, the upward momentum of the rebound may be limited. Even if the rebound continues, it is still necessary to conservatively look towards the resistance 1.25675. 

(1-hour chart of GBP/USD, source: Ultima Markets MT4) 

According to the pivot indicator in Ultima Markets MT4, the central price on that day is 1.25065, 

Bullish above 1.25065, with the first target of 1.25511 and the second target of 1.25930 

Bearish below 1.25065, with first target 1.24647 and second target 1.24209 

Disclaimer 

Comments, news, research, analysis, prices and other information contained in this article can only be regarded as general market information, provided only to help readers understand the market situation, and do not constitute investment advice. Ultima Markets will not be responsible for any loss or loss (including but not limited to any loss of profits) that may arise from the direct or indirect use or reliance on such information.