Gloomy China data sows panic, but EURUSD still has a chance to rebound
A glimmer of hope after equity markets’ rebound last Friday was dampened after release of China economic data on Monday. Industrial production in China contracted 2.9% YoY against the forecast of 0.4% growth, retail sales collapsed by 11.1% missing estimate of -6.1%:
Unemployment also rose, from 5.8% to 6.1% in April. The data overshadowed the news that the government are beginning to gradually lift the lockdown in Shanghai, China's major industrial and financial center.
S&P 500 futures were up at the beginning of the session, but after the release of the data, the price went down and found some balance around 4000 points. European markets are in the red ahead of release of the EU inflation data, which is likely to indicate resistance to fading, increasing chances that the ECB will begin to prepare markets for earlier action in policy normalization. In particular, the case with the July rate hike remains the main uncertainty for the markets in the ECB's action plan. Despite the fact that more and more officials are talking about the benefits of a rate hike in July, there is still no final clarity. Therefore, the inflation report has every chance to impress the market, in particular, there is a risk that the Euro may tactically strengthen against the dollar.
Other important updates include an updated Goldman Sachs forecast for the growth rate of the US economy in 2022. The investment bank cut its forecast growth rate from 2.2% to 1.6%, likely reflecting the White House's austerity plan, under which the government intends to reduce the public debt by 1.5 trillion dollars.
The dynamics in the foreign exchange market remains highly dependent on the mood of investors in the stock market, where there are desperate attempts to find a balance after seven consecutive weeks of decline. Local macroeconomic data continues to play a secondary role, especially in non-core economies. The role of the real rate differential has also decreased somewhat (capital flows to where there are expectations of a higher real rate), as anxiety and even panic about stagflation and recession due to the instability generated primarily by commodity markets come to the fore. As long as these factors continue to influence, demand for the dollar is likely to remain elevated. In particular, data on retail and existing home sales in the US may reinforce the view that the US economy is now one of the most resilient to the challenges of stagflation.
If the S&P 500 manages to stay above 4000 today at the American session, which will allow us to consider the state of the market as stabilization, EURUSD will have a chance to grow to 1.05-1.055 (especially if inflation in the EU is higher than the forecast in tomorrow's report), and GBPUSD - to 1.2320, a previous support zone:
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
A glimmer of hope after equity markets’ rebound last Friday was dampened after release of China economic data on Monday. Industrial production in China contracted 2.9% YoY against the forecast of 0.4% growth, retail sales collapsed by 11.1% missing estimate of -6.1%:
Unemployment also rose, from 5.8% to 6.1% in April. The data overshadowed the news that the government are beginning to gradually lift the lockdown in Shanghai, China's major industrial and financial center.
S&P 500 futures were up at the beginning of the session, but after the release of the data, the price went down and found some balance around 4000 points. European markets are in the red ahead of release of the EU inflation data, which is likely to indicate resistance to fading, increasing chances that the ECB will begin to prepare markets for earlier action in policy normalization. In particular, the case with the July rate hike remains the main uncertainty for the markets in the ECB's action plan. Despite the fact that more and more officials are talking about the benefits of a rate hike in July, there is still no final clarity. Therefore, the inflation report has every chance to impress the market, in particular, there is a risk that the Euro may tactically strengthen against the dollar.
Other important updates include an updated Goldman Sachs forecast for the growth rate of the US economy in 2022. The investment bank cut its forecast growth rate from 2.2% to 1.6%, likely reflecting the White House's austerity plan, under which the government intends to reduce the public debt by 1.5 trillion dollars.
The dynamics in the foreign exchange market remains highly dependent on the mood of investors in the stock market, where there are desperate attempts to find a balance after seven consecutive weeks of decline. Local macroeconomic data continues to play a secondary role, especially in non-core economies. The role of the real rate differential has also decreased somewhat (capital flows to where there are expectations of a higher real rate), as anxiety and even panic about stagflation and recession due to the instability generated primarily by commodity markets come to the fore. As long as these factors continue to influence, demand for the dollar is likely to remain elevated. In particular, data on retail and existing home sales in the US may reinforce the view that the US economy is now one of the most resilient to the challenges of stagflation.
If the S&P 500 manages to stay above 4000 today at the American session, which will allow us to consider the state of the market as stabilization, EURUSD will have a chance to grow to 1.05-1.055 (especially if inflation in the EU is higher than the forecast in tomorrow's report), and GBPUSD - to 1.2320, a previous support zone:
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.