China: Uplifting COVID News May Finally Move Markets In A "Positive" Way. Australian-Chinese Exports May Affect AUD/USD In The Near Future. Where Is EUR/USD Heading To? | Saxo Bank

Crucial Upcoming PMI Data and High-Stake Meetings Shape China's Economic Landscape

Summary:  The squeeze higher in equities in the US finished with a punchy flourish on Friday, as dire sentiment readings finally gave market contrarians something to celebrate. Sentiment stayed buoyant to start this week on hopes China is set to ease Covid restrictions, although this in turn may be driving global oil prices higher after Brent closed last week just shy of the highest weekly close of the cycle. Any new rise in oil prices could quickly dominate market focus from here and drive fresh inflation fears.

What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) 

- Nasdaq 100 futures are extending the rally that started on Wednesday last week interrupting the seven-week long decline in technology stocks. Nasdaq 100 futures are trading around 12,865 this morning in early European trading hours and the 13,000 level is likely a short-term key point to test for the market. We see little to stop this short-term sentiment rally as some short positions are likely being squared adding to the upward pressure. Overall, nothing has changed except maybe except for pressures in commodities, in particularly energy, that have gotten worse.

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Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) 

- both trades higher with Covid cases falling in Shanghai and Beijing, and after the Shanghai municipal government announced an economic support package of 50 measures.  Starting from June 1, factories in Shanghai are allowed to resume production without having to apply for pre-approval from the authorities. Domestic consumption stocks gained on the prospect of reopening. Restaurant stock Jiumaojiu (09922) jumped over 10% and beverage counter China Resources Beer (00291) gained 8%. Chinese internet stocks followed through on last week’s post result rallies and continued to surge 2% and 10% on Monday. Meituan (03690) surged 7% ahead of reporting Q1 results on June 2. 


– the most traded USD pair has worked higher and is now threatening the next layer of resistance, which perhaps starts with the 38.2% Fibonacci retracement of the move from the February and 2022 highs near 1.1500 to the low at 1.0787. Above there, the old range low just above 1.0800 is another focus ahead of 1.0872, the 61.8% Fibo of the local wave. The EURUSD bear trend is so well entrenched that a trend reversal requires significantly higher levels towards 1.1500, although a quick move to 1.1200 (a major cycle low back in late 2021) and near the 200-day moving average, would significantly weaken the structural picture.

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– The AUDUSD pair an interesting one to watch for the status of the USD trend against more pro-cyclical currencies, as already the rise back above the 0.7000 has placed a question mark next to the status of the USD rally, as this was a major level on the way down. But the really important resistance in the local context is the 0.7260 area, which is a local pivot high from early May and near the 200-day moving average. The sentiment from news flow from China will weigh heavily from here, as will the impact of that news flow on key Australian commodity exports like iron ore, with general risk sentiment also an important driver.

Crude oil (OILUKJUL22 & OILUSJUL22) 

trades higher after closing at an 11-week high on Friday on continued signs of tight fuel inventories ahead of an expected busy summer driving season, and with China slowing easing anti-virus lockdown curbs the added demand is likely to continue to force prices higher until demand starts to ease. With refinery capacity coming back online after maintenance demand for crude oil from refineries, the ultimate buyer of crude, is likely to rise at a time where global supply and supply chains has been severely disrupted by sanctions against Russia. Having broken above resistance-turned-support at $115, Brent may now take aim at $124. OPEC+ meets on Thursday to rubberstamp another illusive 430k barrels per day production increase. The group has fallen well behind its own target with several countries, led by Russia, struggling to reach their quotas.

Gold (XAUUSD) 

trades higher with a softer dollar and lower bond yields, as well as rising fuel prices supporting a fresh attempt to challenge key support at $1868/70, the 38.2% retracement of the April to May 211-dollar correction. Silver (XAGUSD) meanwhile trades near a three-week high relative to gold supported by recovering industrial metals on hopes China’s easing of anti-virus curbs will drive a recovery in demand. The recent recovery in gold was supported by investors hedging themselves against a central bank policy mistake with aggressive monetary-policy tightening driving concerns over a potential US recession. Despite these latest tailwinds, the recovery has yet to show enough strength to challenge those looking for lower gold prices, hence a continued focus on economic data, the dollar and yield developments.

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US Treasuries (TLT, IEF) 

- some softer data last week from the US and weak sentiment readings have longer rates settling in the 2.75% area and the market pricing of the Fed tightening regime easing slightly lower as the market prices in a Fed funds rate of 2.50-2.75% by the end of this year. But uncertainties abound on how the market will behave as the Fed withdraws liquidity via quantitative tightening (reduction of its balance sheet), which is set to kick off this week and ramp up to a pace of $95 billion/month over the following three months.

Source: Saxo Bank

Crucial Upcoming PMI Data and High-Stake Meetings Shape China's Economic Landscape

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