ASIAN STOCKS FALL AS TRADE JITTERS CONTINUE
Asian stocks fell today as traders continued with their concerns of a simmering trade war. The Chinese Shanghai composite index was down by 35 basis points while Japan’s Nikkei was lower by 50 basis points. Hong Kong’s Hang Seng, which recently fell into a bear market territory continued its decline today, falling by 42 basis points. The $1.2 trillion Hang Seng is viewed by many investors as a barometer for the emerging markets because most of the companies listed there are from the emerging markets of China, Singapore, and Malaysia.
The US dollar weakened slightly against the Japanese Yen even as the Ministry of Finance released disappointing manufacturing numbers. The Business Sentiment Index (BSI) rose by 6.5%, which was lower than the expected 8.0%. This data measures the sentiment of the economy from large manufacturing companies like Toyota, Mitsubishi, and Sumitomo. However, the number was better in September than it was in June when it contracted by 3.2%.
The euro fell slightly against the US dollar and GBP as traders eyed key economic data. In the morning today, we will receive the Spanish CPI numbers. Traders expect the numbers to show that CPI remained at 2.2% in August. We will then receive the Italian industrial production number. Traders expect the industrial production numbers to rise by 1.4%, which will be lower than last month’s 1.7% gain. The unemployment rate is expected to improve slightly to 10.8% from last month’s 11.1%. Finally, we will receive the employment change and industrial production numbers for the EU-28.
Today, the ECB and BOE will begin their monetary policy meetings. The respective monetary policy decisions will be made tomorrow and while no bank is expected to hike, traders will pay close attention to the respective statements. Traders will expect the BOE to send signals about the next rate hike. They will also expect clarity from the ECB about the end of QE in December and the meaning of its forward guidance about a rate hike in 2019.
This week, the EUR/USD pair has traded within a narrow range as traders wait for the ECB decision. It is now trading at 1.1586, which is slightly higher than yesterday’s low of 1.1525. AS shown, the pair has formed a symmetrical triangle pattern, which is an indication that traders are waiting for a breakout. This will depend on the ECB decision tomorrow. A hawkish ECB will take the pair higher above the 1.1745 resistance level. A dovish ECB will likely take the pair lower below the 1.1500 support.
The USD/JPY began a sharp rally on Friday last week when it started rising from a low of 110.37. The rally took it to 111.64, where it established a major resistance. The 14-day EMA is now crossing the 25-day EMA, which is a sign that the pair could continue the downward movement. If it does, it will likely fall to the 111.30, which is an important part of the current cup and handle pattern.
The USD/CAD pair started a sharp increase at the end of August. It rose from a low of 1.2888 and reached a high of 1.3225 on Friday last week. Since then, the pair has dropped sharply and today it reached a low of 1.3040 in the Asian session. The latter was at the 50% Fibonacci Retracement level. It is now trading at 1.3066, which is between the 50% and 61.8% Fibonacci level. More downward movements will see the pair test the 1.3000, which is slightly below the 38.2% Fibonacci Retracement level.