Chinese central bank shocks with rate cut amid continuing growth concerns

Global Market

The People’s Bank of China shocked the markets in Friday’s trading session as it cut its one-year deposit rate and one-year lending rate by 25 basis points each to 1.5% and 4.35%, respectively. This move not only further fuels the mounting concerns about the economic deceleration in the world’s second largest economy but raises questions about its Q3 GDP of 6.9%, and shows how the PBoC is willing to do all it can to ensure that the 7% end of year growth target is reached.

Following the dovish tone from the ECB press conference on Thursday, Dollar sensitivity that has been derived from the looming FOMC statement next week has assisted the aggressive appreciation within the Dollar Index. This Index cut through the 20 and 200 daily SMA concluding at the 96.50 resistance, turning technically bullish on the daily timeframe. Despite this abrupt upsurge, Dollar vulnerability continues to remain the main theme in the global currency markets. Sentiment remains bearish for the USD and the low probability that the Fed will raise rates in October will continue to mount additional downwards pressure on this single currency.

Despite the slight decline in Gold as a result of the USD appreciating, this precious metal continues to remain fundamentally bullish. The renewed fears about the decelerating growth in China combined with dissolving expectations that the Fed will raise US rates in 2015 has provided a foundation for Gold to potential end 2015 positive, something not seen since 2012. Next week’s FOMC statement which should conclude with no action taken by the Fed to hike US rates may inspire upwards momentum in this yellow metal with the first realistic target being September’s highs of 1191.50.

The growing concerns about an oversupply in oil continue to enforce downward pressures on the price of WTI. This week the commodity experienced losses as the ongoing fears about China growth combined with anxiety about the US economy has fueled concerns about global demand for oil. The sharp appreciation in the USD as a result of yesterday’s ECB doves combined with crude oil inventories rising by 8 million in middle October may drag prices back to the gravitational $44.00 support. This commodity remains technically bearish on the daily timeframe and any additional fears about a reduction in demand for oil may send prices potentially below the $44.00 support.