A1 Trading

China Could Cause Crash

August 17, 2023
Frank Cabibi

China is the market's biggest indicator right now. As we look into their recent economic numbers, investors are becoming increasingly bearish on a lot of things like gold, oil, stocks, and risk-on assets. Today, we'll take a dive into these figures and deduct what this could do to the global markets.

EdgeFinder Analysis

AC is one of the strongest bearish scores on the EdgeFinder right now. At -8, CAD is looking stronger against the Aussie due to most fundamental signals and all the technicals. Retail is trading against the trend as 74% stay long this asset. Seasonality is also suggests this month and next to be a loss for the pair.

The past month has shown us that China's economy is not as strong as everyone initially thought. GDP, Manufacturing PMI and Industrial Production have all fallen in the most recent reports. Most investors expected a steady rise in these numbers, but they got the opposite. This is important because it pertains to Canada's oil market. Seeing a fall in demand could actually help this pair to the upside if other factors don't keep it stronger than the Aussie.

EURUSD looks increasingly bearish on Fed hawkishness and declining optimism on China. Because of that, strength has left the stock market for now and is turning towards the USD. As the pair came up to resistance on the 1H, it appears to be retracing nicely off that level.

Analysts expect a more restrictive monetary policy in the coming months as of now. The dollar is also gaining demand from CPI y/y coming in hotter than expected in the last report. Meanwhile, CPI m/m and Core remained unchanged, suggesting stubborn prices.

USDCAD looks increasingly bullish for the reasons stated above about the USD. On top of that, China's news can add to the lessening demand of Canada's oil-driven economy. Despite rising CPI in CAD, China seems to be a much greater point in the factors at play.

The pair is at a +6 Strong Bullish reading. Inflation is the only score that Canada is winning, due to USD's m/m rate not moving. Technicals show the trend moving higher in the next several trading days, while matching the seasonality. The next five months are expected to be positive.

Retail Spotlight

After looking at the retail positions today, they seem to be mostly short GBP pairs, EUR pairs, and USD pairs. On the long side, we have CAD, NZD, AUD and USDCHF is the exception.

Smart Money Spotlight

Here is EU on the positional bias chart. What started out as a strong increase in bullish sentiment, quickly turned favor towards the dollar in the latest inflation numbers and Fed meeting minutes. If the bias keeps decreasing, so might the price of EURUSD.

Fundamental Spotlight

More inflation data on the USD, CAD and AUD assets to compare them with oil prices. As all three have shown a rise in prices (except USD's unchanged CPI m/m), oil seems to be gaining some momentum. However, the question of China's health remains in question. They are no longer releasing youth unemployment rate too, adding to the mounting uncertainty on global demand.

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