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China COVID fears hurt sentiment

7 November 2022

The DAX is falling after rallying 1.6% across last week, helped by a 2.5% jump on Friday. The index has rallied over 11% since the start of October as the market prices in the possibility of the  Fed slowing its rate hikes and rumours that China could look to ditch the zero-COVID approach. However, this weekend, further COVID lockdown restrictions raise questions over the prospect of China easing its zero-COVID stance. Today investors continue to digest the fallout from last week’s central bank meetings and the non-farm payroll print while also looking ahead to today’s German industrial production data. Factory output has struggled in recent months as energy prices soared and foreign demand dropped.

While production is expected to rise modestly in September, the outlook for the sector remains depressed. Looking out across the week, German inflation data on Friday is expected to be the economic highlight.

Where might the DAX price head to?

DAX once again failed at 13550 and is rebounding lower. Still, the rise over the falling trendline resistance, the 20 sma crossing above the 50 sma, and the RSI holding over 50 could be considered bullish signals. Buyers could look for a rise over 13550 to create a higher high towards the key 14,000 level. On the downside, a move below 13150, the falling trendline support could expose the 50 sma at 12750, possibly negating the near-term bullish trend.

BTC/USD eases after NFP-inspired rally

BTC/USD eases back from an almost 2-month high, having pushed over 21k to 21,473 over the weekend. The cryptocurrency benefited from the upbeat mood following the US non-farm payroll report, which showed job creation was much higher than forecast. Still, signs of weakness also started to appear in the report, with unemployment rising by more than expected to 3.7% and wage inflation growth slowing. While the data was mixed, the market focused on the rise in unemployment, supporting the view that the Federal Reserve could slow the pace of interest rate rises. The terminal rate eased from 5.25% to 5.09% after the data. The USD saw its largest one-day drop in 7 years.

Attention this week will be firmly on US inflation data, and US midterm elections as Bitcoin continues to be driven by the broader macro environment. The mid-terms could have significant implications for regulatory policy.

AUD/USD falls as China reiterates commitment to zero-COVID

AUD/USD is falling after booking gains of 0.8% last week. The Aussie benefitted from unconfirmed speculation that China could be considering ways to exit its zero-COVID strategy and from the upbeat market mood following Friday’s mixed payroll report. The Aussie is falling following weak economic data from China and after Beijing reiterated its commitment to zero-COVID, dispelling recent rumors. Economic data has weakened this year as lockdowns hit growth, a trend that is unlikely to stop soon. Overnight trade data showed that both imports and exports dropped steeply. Attention will now shift to consumer confidence data due to be released later. Consumer confidence is deeply pessimistic as interest rates keep rising and costs remain high. Inflation expectations have risen to the highest level in 10 years, which could keep confidence low.


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