Chinese Equity Market Bullish After Rate Cut

• The Chinese equity market is robust on the back of monetary easing policy and the Chinese government's economic stimulus package.
• The dollar eased to recent low levels and boosted gold to reach an all-time high.
• Keep an eye on tomorrow's BoJ monetary policy meeting minutes and their implications for the yen. 

Market Summary

The Asian equity market has taken centre stage in the global financial landscape, particularly with Chinese indexes, such as the China A50 and the Hang Seng Index (HSI), both surging by nearly 10% over the past two sessions. This rally has been driven by monetary easing policies and stimulus packages from the Chinese government, alongside improved risk appetite in the broader market, fueling optimism in Asia's equities.

In the U.S., Wall Street recorded marginal gains in the last session, while the dollar weakened to its recent lows. This followed the market digesting signals from the Federal Reserve, indicating that a larger rate cut may be necessary to support the U.S. economy. Meanwhile, the Reserve Bank of Australia (RBA) announced an interest rate decision that aligned with market expectations, keeping rates unchanged. Despite holding rates, the RBA maintained a hawkish stance, boosting the Aussie dollar to its highest level since July, as the U.S. dollar remained under pressure.

Looking ahead, the Bank of Japan (BoJ) is set to release its monetary policy meeting minutes tomorrow. A hawkish tone could strengthen the Japanese yen, particularly against the backdrop of the weakening dollar.

In commodities, gold surged to a new all-time high above $2,650, benefiting from the softening dollar, while oil prices edged higher, with traders keeping a close watch on geopolitical developments in the Middle East.

Current rate hike bets on 7th November Fed interest rate decision: 

Source: CME Fedwatch Tool

-50 bps (32%) VS -25 bps (68%) 

Market Movements

DOLLAR_INDX, H4

The US Dollar remained in a bearish trend amid expectations of aggressive Federal Reserve rate cuts. US consumer sentiment also weakened, with the Conference Board's Consumer Confidence Index dropping to 98.7 in September from 105.6 in August, reflecting growing uncertainty about the economy.

The Dollar Index is trading lower following the prior breakout below the previous support level. MACD has illustrated increasing bearish momentum, RSI is at 37, suggesting the index might extend its losses since the RSI stays below the midline. 

Resistance level: 100.55, 101.80

Support level: 99.70, 99.05 

XAU/USD, H4

Hot money flow and central banks' aggressive easing measures drove some investors toward safe-haven assets like gold. Falling US Treasury yields added further support to gold prices, while rising tensions in the Middle East also bolstered demand for the metal.

Gold prices are trading higher following the prior breakout above the previous resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 78, suggesting the commodity might enter overbought territory. 

Resistance level: 2675.00, 2780.00

Support level: 2600.00, 2530.00 

GBP/USD，H4

The Pound Sterling continues to stand out as one of the strongest currencies in the market, rising to its highest level since March 2022 amid ongoing weakness in the U.S. dollar. The pair's upward momentum indicates a clear bullish bias. The U.S. dollar is under pressure, driven by the Consumer Confidence Index, which fell sharply below the critical 100 mark in the latest release. Coupled with dovish statements from several Federal Reserve members advocating for additional rate cuts, the dollar faces strong downside risk. As a result, the GBP/USD pair is expected to maintain its bullish trend in the near term.

The GBP/USD pair has risen nearly 1% this week, suggesting the pair is trading with extremely strong bullish momentum. The RSI has gotten into the overbought zone, while the MACD continues to edge higher, suggesting the bullish momentum remains strong. 

Resistance level: 1.3440, 1.3520

Support level:1.3350, 1.3285

EUR/USD，H4

The EUR/USD pair is nearing a critical resistance level at 1.1200, with a potential breakout suggesting a strong bullish signal. This momentum is largely driven by the weakening of the U.S. dollar, as its strength has been hindered by a series of soft economic indicators and a dovish stance from the Federal Reserve. Should the pair successfully break above 1.1200, it could mark the continuation of an upward trend, as market sentiment favours further dollar weakness amid expectations of larger rate cuts from the Fed.

EUR/USD has broken above its previous high and is approaching its recent high level at near 1.1200, suggesting a bullish bias for the pair. The RSI has been gaining, while the MACD has rebounded from above the zero line, suggesting that the bullish momentum remains. 

Resistance level: 1.1220, 1.1300

Support level: 1.1150, 1.1080 

USD/JPY, H4

The USD/JPY pair has formed a classic double-top price pattern along with a lower-low, signalling a potential trend reversal. The Japanese Yen has been weak in recent weeks, but market attention is now focused on the upcoming Bank of Japan (BoJ) monetary policy meeting minutes, set to be released tomorrow. If the minutes indicate a hawkish tone or show signs of tightening policy, it could strengthen the Yen.

The recent price pattern suggests a potential trend reversal for the pair. The RSI has been gradually moving lower, while the MACD has a deadly cross on top, suggesting that bullish momentum is easing. 

Resistance level: 146.00, 149.20

Support level: 141.40, 138.90

AUD/USD, H4

The AUD/USD pair has surged to its highest level since July 2023, indicating strong bullish momentum. The Reserve Bank of Australia's (RBA) recent interest rate decision, which aligned with market expectations to keep rates unchanged, contributed to this movement. Despite holding the rate steady, the RBA's hawkish tone has bolstered confidence in the Aussie dollar, leading to its recent strength against a weakening U.S. dollar. This upward momentum suggests that traders remain optimistic about the Aussie dollar's outlook.

The pair has broken from the previous resistance, suggesting a bullish bias. The RSI remains at the above 50 level, while the MACD edges higher, suggesting that bullish momentum is gaining.  

Resistance level: 0.6920, 0.6990

Support level: 0.6840, 0.6780

HK50, H4

China's equity market gained significant bullish momentum following the central bank's broad monetary stimulus package. The People’s Bank of China, led by Governor Pan Gongsheng, cut key short-term interest rates and reduced bank reserve requirements to the lowest levels since 2018. These moves, along with a package to support the property sector, including lowering mortgage costs and easing second-home purchase rules, fueled market optimism. This marks the first time both interest rate cuts and reserve reductions were revealed on the same day since 2015.

HK50 is trading higher while currently testing the resistance level. MACD has illustrated increasing bullish momentum. However, RSI is at 73, suggesting the index might enter overbought territory. 

Resistance level: 19725.0, 20295.0

Support level: 19065.0, 18435.0 

CL OIL, H4

Crude oil prices experienced a slight retreat due to technical corrections and profit-taking, but the long-term outlook remains positive. Aggressive monetary easing and economic stimulus plans are expected to support future oil demand. Additionally, ongoing Middle East tensions are providing a risk premium to oil prices.

Oil prices are trading lower following the prior retracement from the resistance level. MACD has illustrated increasing bearish momentum, while RSI is at 49, suggesting the commodity might extend its losses since the RSI stays below the midline. 

Resistance level: 71.95, 74.15

Support level: 70.40, 68.60