This week will bring plenty of US macroeconomic data and a speech from US Fed Chairman Powell, which should give the markets a clearer direction of where the Fed may be headed next regarding monetary policy. Powell speaks at the Brookings Institute on Wednesday. The topic is the economy and labor market. The statement after the November 2nd FOMC meeting stated that “in determining the pace of rate hikes, we will consider cumulative tightening, policy lags, and economic and financial developments”. The markets took this to be dovish. However, in the press conference that followed, Powell said that the incoming data suggests that the ultimate level of rates will be higher than previously anticipated. However, he also that the pace of tightening is not as important as the terminal rate. Markets took this to be hawkish! Traders will be looking for Powell to clarify these statements and try to determine if the Fed will hike by 50bps or 75bps at the December meeting. In addition, the US will release the Fed’s favorite measure of inflation, Core PCE. Expectations are for a YoY print of 5% vs a September reading of 5.1%. If this number is stronger, the Fed may feel comfortable leaning towards a 75bps hike in December. The US will also release Non-Farm payrolls on Friday. Expectations are for a print of 200,000 vs a previous reading of 261,000. The Unemployment rate is expected to remain unchanged at 3.7%.
As China’s “zero-Covid” restrictions and lockdowns heat up, so are the emotions of many Chinese people. A fire over the weekend in Xinjiang, in which 10 people died, angered protesters who said that the fire was made worse by the zero-Covid policy. Riots and clashes with police flared up in some areas where the protests were held, such areas as Shanghai and Beijing. Protestors are frustrated with the amount of quarantines and restrictions. However, despite the lockdowns, Beijing reported record levels of Covid. This may lead to even more quarantines and restrictions. WTI crude oil has dropped from a high of 82.51 on November 23rd to an intra-day low of 74.02 on Monday as fears of a lack of demand swelled in the markets. Will the zero-Covid policy lead to a recession in China? Apple has already announced that due to lockdowns in Zhengzhou, the company is expecting a production shortfall of 6 million iPhone Pros this year. On Wednesday, China will release its official NBS Manufacturing PMI for November and on Thursday, the Caixin Manufacturing PMI will be released. Both are expected to remain under the 50 expansion/contraction level. The big question traders will be asking is “How much did the zero-Covid policy lead to a slowdown during November?”. Traders will also be trying to figure out how much a slowdown will affect oil demand ahead of the OPEC+ meeting on December 4th.
USD/CNH has been on the rise since late-February as it became more apparent that the Fed would begin raising rates in March. On May 13th, price peaked at 6.8375 before consolidating in a symmetrical triangle. However, on August 15th, USD/CNH broke higher out of the triangle and rose in an ascending wedge formation as price peaked on October 25th at 7.3748. This was also the highest level since 2007. Price then pulled back and broke below the bottom trendline of the wedge, reaching the target for the breakdown (a 100% retracement of the wedge) near 7.0192. Since then, the pair has been bid, and gapped higher on Monday , opening at 7.2308.
Source: Tradingview, Stone X
On a 240-minute timeframe, USD/CNH gapped higher on Monday to the 61.8% Fibonacci retracement level from the highs of October 25th to the lows of November 14th near 7.2393, then pulled back intra-day to fill the gap. The first resistance is at the highs from November 9th at 7.2798 and then again at the highs from November 1st at 7.3566. Above there, price can move to the highs of October 25th at 7.3748. However, if price pulls back, the first support is at previous highs near 7.1884. Below there, price can fall to the rising trendline dating to November 18th near 7.1497, then the lows of November 18th at 7.1133.
Source: Tradingview, Stone X
With Fed Chairman Powell speaking, US Core PCE and Non-Farm Payrolls, along with the increase In Covid cases and unrest in China, USD/CNH could be volatile this week. Watch for aggressive moves in the pair should Powell’s speech or the data paint a more hawkish picture heading towards the December 14th meeting.