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EUR/USD Rallies on Soft US Dollar and China Leads Economic Global Recovery

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Miguel A. Rodriguez
Miguel A. Rodriguez
05 November 2022
Stock markets edge higher on Chinese positive news, how Forex and commodity markets traded on Tuesday?

The Chinese industrial production numbers of 5.6% for August came in better than expected of 5.1% and better than the prior read of 4.8%. Additionally, the Chinese retail sales grew in August by 0.5% higher than the expected 0.1% and better than the prior print of -1.1%. These figures reflected the steady pace of the Chinese economy’s recovery.

Equities

The US administration scrapped plans for an import ban on cotton and tomato from China, while China announced that it would extend existing tariff exemption for 16 products from the US. These reports combined with the positive Chinese data boosted Asian stock markets on Tuesday.

The Japanese Chief Cabinet Secretary Yoshihide Suga won as expected the ruling party’s leadership, as such the way is paved for him to replace the Japanese PM Abe. Mr. Suga stated that he would keep on the current economic and foreign policy.

This week investors wait for a variety of important data with three central bank meetings. No change is expected in the Fed monetary policy however, the market will pay attention to the Federal reserve’s projections, especially the unemployment rates.

Stock Market

          Change %

S&P 500

                              +1.2%

Dow Jones

       +1.0%

NASDQ

       +2.0%

Japan 225

       +0.4%

DAX 30

       -0.1%

FTSI 100

       -0.5%

CAC 40

       +0.2%

 

Currencies

The US Dollar index has softened on Tuesday due to a better risk-on sentiment caused by the Chinese positive data and resuming the Coronavirus trials from AstraZeneca after putting them on hold last week. That said, the technical outlook remains neutral with the price eyeing a test of the support level at 92.34.

In turn, the Euro rallied on a weaker US Dollar. Nonetheless, the EUR/USD technical outlook remains neutral while below 1.1909. A daily close above this level would change it to positive.

GBP/USD rebounded from a well-known support area around 1.2773 then rallied eyeing a test of 1.3048. The Sterling pound fell last week by 3.6% due to the controversial UK internal market bill introduced by the UK PM that risks breaching in some parts of it the international law. This week, the bill has cleared the first hurdle in the commons by 77 votes despite criticism. The UK PM said that there would not be any use of the bill if a deal has been reached with the EU, calling it a safety net.

Commodities

Despite clear signs of recovery from the Chinese economy, OPEC has reduced its forecast for oil demand growth in 2020 due to a lower than expected demand in Asia and worldwide due to increased COVID-19 cases.   

The oil price has remained relatively flat this week with the US crude oil eyeing a test of $34.66. A daily close below this support level may cause a fall towards $30.93, while Brent oil could be on its way for a test of  $36.08 per barrel.

Gold edged higher by 0.8% and due to the multiple failures in closing below $1,921, XAU/USD could rally towards $2,015. 

Looking Ahead

On the economic calendar, investors expect the Eurozone ZEW sentiment index for September by 1:00 PM (UAE time) and the US industrial production for August at 17:15. 

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Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.