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

Federal Reserve Interest Rate Stability

The Federal Reserve (FED) held rates still at 5.25 to 5.5%. Chairman Powell said at a press conference after the meeting, “We will continue to make interest rate decisions on a case-by-case basis based on all data and the impact on economic activity and the outlook for inflation. ” 

Chairman Powell’s Insights

Powell said that there is still great uncertainty about the timing of interest rate cuts. The forecast for 2024 is only a current estimate.

He believes that the time for interest rate cuts in 2024 will always come, but he said that he would not specify a specific time. He believes that the labor market will eventually weaken, but must proceed with caution, believing that the failure to restore price stability is a more serious problem. 

Interest Rate Projections

Judging from the interest projections released with the statement, the FED is expected to raise interest rates by another 25 basis points this year, with interest rates peaking at 5.50%-5.75 %.

Technology stocks will be under increasing pressure as rising interest rates push up bond yields, attracting investors to shift more cash into the bond market. 

(FOMC interest rate target level, FOMC) 

Revised GDP Forecasts

The FED believes that the U.S. economy is improving and has revised its 2023 gross domestic product (GDP) growth forecast upward to 2.1% from the 1.0% forecast in June. It has also revised the GDP forecast from 1.1% to 1.5% for 2024. The forecast value for 2026 was first announced at 1.8%.  

(GDP Forecast, FOMC) 

Conclusion

In conclusion, the Federal Reserve’s decision to maintain interest rates and revise GDP forecasts upwards in October 2023 is a clear indication of its faith in the U.S. economic outlook.

The FED’s cautious approach to interest rates, its commitment to data-driven decision-making, and its unwavering focus on price stability will play pivotal roles in steering the nation toward sustainable economic growth and stability in the years to come.

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Disclaimer  

Comments, news, research, analysis, price, and all information contained in the article only serve as general information for readers and do not suggest any advice. Ultima Markets has taken reasonable measures to provide up-to-date information, but cannot guarantee accuracy, and may modify without notice. Ultima Markets will not be responsible for any loss incurred due to the application of the information provided. 

Japan’s Semiconductor Slowdown: Impact on the Economy

Japan’s Ministry of Finance released import and export data for August, which showed weak demand from China and semiconductor equipment.

The export value fell 0.8% from the same month last year to 7,994.3 billion yen due to reduced exports of semiconductor machinery (-36.3%), organic chemicals (-19.1%), and fossil fuels (-63.7%). It fell into contraction for the second consecutive month. 

(Exports YoY, Mo F Japan) 

Import Challenges

Japan’s imports fell 17.8% year-on-year to 8,924.82 billion yen, the fifth month of decline since August 2020 and the largest decrease since August 2020, dragged down by energy costs mainly.

The value of imports decreased due to the import of crude (- 25.5%), liquefied natural gas (-43.0%), and coal (-48.6%). 

(Imports YoY, Mo F Japan) 

Trade Deficit Dynamics

Japan’s trade deficit decreased sharply to JPY 930.5 billion in August 2023 from JPY 2,790.4 billion in the same month a year earlier, compared with market estimates of a shortfall of JPY 659.1 billion.

Exports fell by 0.8% yoy to JPY 7,994.4 billion, the second straight month of drop, amid weak foreign demand, particularly from China; while imports slumped 17.8% to JPY 8,924.8 billion, the fifth consecutive month of fall and the steepest pace since August 2020, weighed down by energy cost and strong yen. 

(Balance of Trade, Mo F Japan) 

Implications and Conclusion

In conclusion, Japan’s economic woes are inextricably linked to the semiconductor slowdown and the declining demand from China.

This hierarchical structure conveys the central message efficiently, with supporting details that provide a comprehensive understanding of the economic challenges at hand.

To overcome these challenges and pave the way for future growth and stability, Japan must address the decline in crucial export sectors, navigate import challenges posed by energy costs, and develop strategies to mitigate the trade deficit impact.

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Disclaimer  

Comments, news, research, analysis, price, and all information contained in the article only serve as general information for readers and do not suggest any advice. Ultima Markets has taken reasonable measures to provide up-to-date information, but cannot guarantee 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 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. 

Mastering Holiday Spending in Times of Economic Uncertainty

A new CNBC-Morning Consult survey has found that 92% of adults have reduced their spending over the past six months, and plan to spend less through the holidays. 

The Core Insight

Consumers remain cautious in their spending due to job insecurity and inflation. The most common categories for spending cuts over the past six months were clothing and apparel (63%), restaurants and bars (62%), and entertainment outside the house (56%), a pattern that held steady from our June survey. The next biggest categories for cuts were groceries (54%), recreational travel and vacations (53%), and electronics (50%.) 

Looking ahead to the holiday shopping season, a warning for retailers: More than three-quarters of all U.S. adults surveyed (76%) plan to cut back on spending for non-essential items, and 62% expect to cut back on essential items “sometimes” or “more often” over the next six months, the survey found. 

Just how acutely consumers reported feeling the impact of the current economic situation varied among socio-economic groups. And it wasn’t always those making the least that reported feeling most pinched. 

Impact Across Socio-Economic Groups

More than half (55%) of households earning $50,000 or less (lower-income) said they’re feeling the impact of the economy on their personal finances, while 61% of households with $50,000 to $100,000 (middle-income) and 46% of households making at least $100,000 (higher-income) reported the same. 

However, Higher-income households are in fact moving toward feeling that the economic situation is having a positive impact, the survey reports 30% in September, up from 21% in June. 

Conclusion

In light of the economic uncertainty, a significant portion of Americans is adjusting their spending habits, especially as they approach the holiday season.

While these changes in consumer behavior pose challenges, they also offer opportunities for individuals to reevaluate their financial priorities and develop prudent spending habits.

By following these strategies and adapting to the current economic landscape, you can make the most of the holiday season while safeguarding your financial well-being.

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Disclaimer  

Comments, news, research, analysis, price, and all information contained in the article only serve as general information for readers and do not suggest any advice. Ultima Markets has taken reasonable measures to provide up-to-date information, but cannot guarantee accuracy, and may modify without notice. Ultima Markets will not be responsible for any loss incurred due to the application of the information provided. 

The European Central Bank’s Recent Interest Rate Hike and Its Impact on the Euro

The European Central Bank (ECB) raised the three key interest rates by 25 bps.

Starting from September 20, 2023, the marginal lending facility, main refinancing operations, and deposit facility will increase to 4.75%, 4.50%, and 4.00% respectively, setting a record since the euro was introduced in 1999. 

(Latest ECB interest rate, ECB) 

A Historic Interest Rate Shift in ECB

The ECB raised the benchmark interest rate from a historical low of -0.5% to the current record high in 20 years and 14 months.

Although Eurozone inflation has cooled, reaching 5.3% in August, the same as in July, it is still far beyond the 2% target. Rising interest rates put pressure on the euro, which fell to its lowest level against the dollar in five months. 

(EUR /US YTD Chart) 

ECB’s Inflation Control and Economic Growth Prospects

European Central Bank President Christine Lagarde said at the press conference that inflation in the eurozone has been hovering at a high level for too long, core inflation is still too high, and food and energy costs continue to put upward pressure on prices.

She reiterated that the ECB is committed to bringing inflation back to its 2% target. At the same time, the economy is expected to grow by 0.7% this year, 1% next year, and 1.5% in 2025, which is lower than the previous forecast growth of 0.9%, 1.5%, and 1.6%. 

The Global Implications

The ECB’s move has not only had a profound impact on the Eurozone but has also sent ripples across the global financial landscape. It underscores the central bank’s unwavering commitment to achieving price stability, even at the expense of economic growth prospects.

In conclusion, the ECB’s decision to raise interest rates to their highest levels in over two decades is a clear signal of its determination to tackle inflation. While this move may have consequences for the Euro and economic growth in the short term, it demonstrates the central bank’s commitment to maintaining price stability in the Eurozone.

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Disclaimer  

Comments, news, research, analysis, price, and all information contained in the article only serve as general information for readers and do not suggest any advice. Ultima Markets has taken reasonable measures to provide up-to-date information, but cannot guarantee accuracy, and may modify without notice. Ultima Markets will not be responsible for any loss incurred due to the application of the information provided. 

Unveiling the Robust U.S. Economic Landscape Ahead of the Federal Reserve Meeting

The Bureau of Labor Statistics released three statistical reports on September 14: 

1. Retail sales 

U.S. retail sales in August increased by 0.1% on a monthly basis higher than market expectations, and the annual growth rate increased from 2.6% to 2.5%. Retail sales in August were mainly driven by the sharp increase in gas station sales mom from 0.1% to 5.2%, reflecting the rebound in oil prices.

Other categories also generally showed positive growth, with more significant increases including automobiles and parts from -0.4% to 0.3%, electronics Supplies -1.1%→0.7%, and dining out and catering 0.8%→0.3% showed a slowdown.

Overall, retail sales in August were partly due to the recovery in gasoline prices, but retail sales excluding automobiles and gasoline were also higher than market expectations. (0.2% vs. 0.1%), the control group dropped from 0.7% to 0.1%, which was still better than the market expectation of -0.1%, highlighting that the US consumer market is still strong. 

(Retail Sales data, BLS) 

2. Initial jobless claims 

Last week, the number of initial claims for unemployment benefits increased by 3,000 from 217,000 to 220,000, lower than the expected 225,000.

The number of continuing claims for unemployment benefits in the previous week increased by 4,000 from 1.684 million to 1.688 million, which was lower than the market estimate of 1.69 million people, showing that the job market is cooling more slowly than expected. 

(Initial Jobless Claims, BLS) 

3. PPI (Producer Price Index)

The August producer price index (PPI) increased by 1.6% year-on-year, higher than market expectations of 1.2% and the previous value of 0.8%, growing for the second consecutive month.

Excluding volatile food and energy prices, the August core PPI rose by 2.2% YoY, in line with market expectations and lower than the previous value of 2.4%.

The growth of PPI in August was mainly driven by rising energy and transportation costs.  

(Core PPI, BLS) 

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Disclaimer  

Comments, news, research, analysis, price, and all information contained in the article only serve as general information for readers and do not suggest any advice. Ultima Markets has taken reasonable measures to provide up-to-date information, but cannot guarantee 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 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.