China's macroeconomic data released on Monday disappointed investors and boosted the greenback but had little effect on the market in general.
According to the official report, in July, China's industrial production fell to 3.8% from 3.9% year-on-year, below the market forecast of 4.6%. Likewise, retail sales plunged to 2.7% versus 3.1% year-on-year, while economists had expected the figures to rise to 5.0%.
In this light, China's central bank lowered the rate on its one-year policy loans to 2.75% to stimulate economic activity and domestic demand in the country. As a result, the greenback strengthened. The reason for such investor behavior is the same – the high risks of a deep recession in the world. With the US on the edge of a recession, the latest data showed a similar possibility in China, which seriously spooked the markets. If the world's two leading economies slip into a recession, the risks of a global economic downturn will mount.
The possibility of an aggressive Federal Reserve is also driving the dollar up. The interest rate is mostly expected to be raised by 0.25%. However, there is still a high likelihood of a 0.50% or even 0.75% rate hike. All recently interviewed FOMC officials advocate for that.
Thus, Federal Reserve Bank of Richmond President Thomas Barkin said on Friday that the Federal Reserve would have to move rates into "restrictive territory" until inflation was sustainably within its target range for a significant period of time. Anyway, the focus is now on the FOMC Minutes for July, scheduled for Wednesday. It could shed some light on the Federal Reserve's future steps.
So what can we see in the market today?
We will unlikely see some significant movements ahead of the FOMC Minutes and important macro reports. The dollar is likely to go down on positive results in Europe. Still, market sentiment may change with the opening of the Nort American session if trading starts in negative territory. So far, it is the most likely scenario.
Daily outlook:
EUR/USD
The pair trades above 1.0145 support. If it falls below the mark, a bearish target will stand at 1.0095.
USD/CAD
The pair is below 1.2930 and may rise to 1.3030 if oil prices decrease as well as ahead of the inflation report in Canada.