A1 Trading Company

August 28, 2023

Forget Jackson Hole, China Just Did This

Frank Cabibi

In an attempt to boost the equities market, China changed some rules around for margin traders, cutting the margin ratios for leveraged trades. This, however, did not have the intended effect they anticipated. Chinese stocks are some of the worst performing stocks in August and are likely to put pressure on the yuan, stock markets, commodities.

EdgeFinder Analysis

AUDUSD is still a strong bearish reading on the EdgeFinder at -10. There is not one category that suggests the Aussie could be stronger than the dollar, so we might see further price dips on the pair. The trend projection and seasonality clearly suggesting more downtrend, retail and COT all pointing at dollar bullishness.

To add to the bearishness, AUD is expected to report lower CPI this Tuesday. This would suggest that the RBA might not have to be as aggressive as the Fed, who has been transparent about keeping rates higher for longer.

On top of their margin rules, China also cut trading taxes to help encourage more participation. This was the first time this was done in 15 years. So far, it appears that the recent government's reconsiderations have helped the commodity market a little bit.

However, oil doesn't look too optimistic yet. Last Friday showed a slowdown in COT long positions and a higher number of short contracts on the asset. If price does move higher, a level of resistance waits around $81.60s.

Gold doesn't look as bullish as it used to. The metal went from a bullish rating to a bearish one over the past 30 days. Price is under pressure of the dollar which has taken foothold of most of the market demand recently. Investors fear China's economy could be getting worse while anticipating restrictive interest rate levels for a long time.

However, China is also stockpiling on gold reserves because of their struggling economy. They have increased their reserves to over 2,300 tons. At the same time, smart money is shorting this asset. This weeks will also be an important one for the metal as the US will report GDP, PCE and NFP.

Retail Spotlight

The crowd is short USD for the most part. They are also short US indices, JP225, GER30. The fact that they are now long gold could be another sign that it's not ready to move back to the upside again.

Smart Money Spotlight

Smart Money is less bullish oil, gold and US indices. The positional bias chart at the bottom shows the net bias change over time. This month, the overall net bullishness declined and is heading towards bearish territory.

Fundamental Spotlight

US set to report GDP this Wednesday with an expectation of being unchanged. Good economic data will be good for the dollar and likely further hurt gold, stocks, oil. So, if GDP remains the same or comes in lower, the opposite effect might happen.

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