Shares in China were heading for a fourth-day of losses but staged a late rally to turn positive. The Shanghai Composite jumped by 3.5% in late Asian session and the Shenzen CSI300 index was up by 3%. Equity prices appear to be stabilizing after China’s regulator said it would be buying more shares and has hinted at additional measures to boost liquidity.
In Wall Street, investors put aside concerns over China as shares closed higher on Tuesday for the first time in 5 days as disappointing earnings and the sell-off in China had weighed on US stocks in recent days. The focus now is on the Fed, which will conclude their two-day meeting later today. July’s FOMC statement is significant even though no change in policy is expected because this is the last meeting before September, when a rate hike is widely expected. Markets will be closely scrutinizing the wording of the FOMC statement for a signal that the Fed is preparing to raise interest rates. But it’s unlikely the Fed will give too much away as several factors such as increased risks from China could sway the Fed from raising rates by the time of the September meeting.
The dollar index moved higher in late Asian session, recovering some of its losses from Tuesday’s US session. The greenback jumped to 123.64 against the yen from an earlier low of 123.32. The euro was weaker against the dollar, dropping from a high of 1.1083 to 1.1046, and was also softer against sterling at 0.7079. Cable managed to hold on to the 1.56 level after yesterday’s strong GDP figures and was trading at 1.5603 in late Asian session.
The aussie was unable to sustain Tuesday’s gains against the dollar as it slipped to 0.7320 on continued weakness in oil prices. Brent crude prices were down by 0.3% to $53.14 in Wednesday’s Asian trading. Meanwhile, the kiwi headed higher, rising to 0.6702 against the greenback after comments from Reserve Bank of New Zealand governor Graeme Wheeler boosted the currency. Wheeler said at a speech that there are several factors supporting economic growth, suggesting that any further reductions in the cash rate are unlikely to be as aggressive as some analysts have anticipated.
As markets await the FOMC statement from the Fed’s July policy meeting, there is little else to keep investors busy until then apart from US pending home sales for June. Markets will also be looking to tomorrow’s US second quarter GDP numbers for further direction.
Technical Analysis – USD/JPY consolidating after 13-year high at 125.84
Since hitting a 13-year high of 125.84, the dollar has pulled back versus the yen, reaching a low of 120.40 on July 8. It has since climbed back up, but the pair has been having trouble holding above the 124 level.
The overall trend remains bullish and the pair has generally managed to stay above its 100-day average for the past 2 ½ months or so.
On the downside, the 121-118.50 area is particularly important to hold as it contains the 200-day average (119.76) as well as the six-month (118.50) and the three-month (120.40) lows.
The MACD indicator is giving a slightly bearish picture as the indicator is below its red signal line, whereas the RSI is slightly bullish at 53.
Overall the pair is probably undergoing a correction / consolidation before attempting fresh highs. A catalyst is probably needed however for that to happen – on the dollar side an interest rate increase by the Fed for example or on the yen side a new monetary stimulus package.
