Risk currencies moved higher during the Asian session after fourth quarter GDP in China beat consensus estimates and came in at 8.9 percent on a yearly basis (against expectations of 8.7 percent). The numbers were positive for markets but it should be remembered that the numbers for the third quarter showed GDP at 9.1 percent, so this latest data is still indicative of an economic slowdown, and the lowest reading we have seen in nearly 3 years.
A reduction in exports and price bubbles in the country’s real estate market are being seen as the main cause of the decreases in GDP. Industrial Production was also released (coming in at 12.8 percent on a yearly basis) along with Retail Sales (which rose by 18.1 percent). These increases are being attributed to hurried manufacturing productivity before the Lunar New Year holiday.
Headlines out of the US were limited, as markets were closed for the Martin Luther King holiday and currencies and equities were caught in tightened ranges. This lack of volatility is somewhat surprising, however, because Moody’s released comments which suggested that they might also be lowering the AAA credit rating for France if nothing is done to improve on the debt to GDP ratio in the country. In a related story, France had its first treasury bond auction since last week’s downgrades, but yields actually dropped and the sale target was met, which shows that the market has already priced-in the credit downgrades.
European data showed that the German Producer Price Index (PPI) saw a sharp drop in December, at 3.0 percent on a yearly basis (after a 4.9 percent rise during the previous month). Switzerland also released in PPI but the numbers looked very different, showing a rise of only 0.3 percent on a monthly basis and a drop of 2.3 percent on a yearly basis. The combination of these two trends will continue to be supportive for currency pairs such as the EUR/CHF, which is currently trading within 100 pips of the Swiss National Bank’s proposed price floor. Buy positions in the EUR/CHF still look to be one of the more attractive positions for traders with longer term time frames.
Looking ahead, markets will have some macro data to asses, with the UK Consumer Price Index (CPI), Eurozone CPI, and the German ZEW survey. In North America, we will see the US Empire Manufacturing report, and then the Bank of Canada monetary policy decision shortly after. We can expect volatility to start picking up again in these sessions as trading volumes return to normal levels.
The USD/JPY is trading at the lower end of its hourly range and this is the third time support is being tested, so a downside break is starting to look imminent. MACD indicator readings are also supportive of this bias as we are crossing under the zero line on the daily charts and upside momentum has been hard to come by. A break of the range will target historical support levels at 75.50.
The S&P 500 is continuing its strong bullish move and has now broken psychological resistance at the 1300 level. These types of breaks have a critical influence on longer term trading biases, so yesterday’s price activity is strongly suggestive of future gains. The next major resistance level in not seen until just under 1350, so the index still has plenty of room to run. Buying dips is the preferred strategy, first support comes in at 1265.