Concerns about the Chinese economy are once again at the forefront this morning with the release of a series of key economic data for July. For some time now investors have feared that the Chinese economy was at risk of a hard landing given the recent weakness in economic data, particularly in manufacturing. The decision over a month ago to cut interest rates was an acceptance by the Chinese authorities that something needed to be done to cushion this slowdown in activity. Speculation has been rising that the People’s Bank of China might be minded to take further measures to ease monetary policy to stimulate the economy, by either cutting the reserve requirements for banks, or trimming interest rates again. This morning’s release of Chinese CPI data has reinforced speculation about further easing measures given that inflation in July has continued its decline, coming in at 1.8% a 30 month low, down from 2.2% in June. Producer prices also slid, falling 2.9%. Chinese retail sales came in weaker than expected this morning, rising 13.1%, below expectations of 13.5%, as domestic demand continued to slide, posing a real concern to Chinese authorities. Given the problems in Europe, China’s biggest export market, they really need to be a lot higher, so the PBoC will need to think about how to stimulate domestic demand further to replace what are likely to be slow European markets for some time to come. Industrial production for July slipped back further rising 9.2% in July down from 9.5% in June suggesting that economic activity is slipping back further. In the UK the latest trade balance numbers for June will be of particular interest given the change we saw in May’s numbers which saw our exports to non EU countries exceed our exports to Europe for the first time in a very long time. This suggests that exporters are starting to grasp the reality that to survive they need to look at markets beyond Europe, even if the government fails to realise the harsh facts on our doorstep. The hope is that this trend continues as businesses adjust to the reality that Europe is likely to be embarking on years of slow growth. You will also get the usual excuses trotted out about the loss of productivity caused by the two bank holiday’s in June which will probably skew the figures somewhat. One thing is certain, in the wake of yesterday’s downbeat tone from Bank governor Mervyn King; a lousy set of numbers will increase the calls for further stimulus measures in the coming months. The June visible trade deficit is expected to rise to -£8.7bn, from -£8.36bn, while the total trade balance is expected to come in at -£3.1bn, slightly higher than the May -£2.7bn. In Europe the latest ECB monthly report is likely to paint a fairly downbeat assessment of the European economy, especially in light of yesterday’s downgrade of French growth by the Bank of France and the disappointing German industrial production numbers for June. EURUSD – for three days in succession the euro has failed to overcome the 55 day MA and resistance in the 1.2430/40 area. This keeps the single currency susceptible to pullbacks in the short term. A break here targets a move to the 1.2600 area and trend line resistance from the 21st May high at 1.2825. We remain mindful of the bullish weekly candle from two weeks ago which still suggests we could be gearing the market up for a euro rally. It would take a move back below the1.2220/30 area, to undermine that scenario and retarget the 1.2150 area. The key level on a monthly close remains the 200 month MA at 1.2060, the July lows. GBPUSD – upside remains limited while below the 200 day MA and resistance between 1.5740/80. Above here and we could see a move to 1.5910. Key support remains at the trend line support at 1.5470 from the 1.5270 lows and any push lower needs to hold to prevent a move back to 1.5270. Only a close below 1.5240 signals a risk of a return to the July 2010 lows at 1.4950. EURGBP – yesterday’s drop lower found support at the 0.7880 area identified in previous notes. A break below here retargets the 0.7820 area. On the upside the 55 day MA remains strong resistance along with trend line resistance at the same level from the February highs at 0.8505 USDJPY – this is becoming a boredom trade becalmed between support below 78.00, and resistance above 79.30. The cloud support at 77.30 and the May lows at 77.60 remaining a key level. As long as this holds the downside, the risk of a rebound remains quite high. A move above the 79.30 level brings the 80.00 level back into play and then by definition the main resistance at the top of the weekly cloud at 80.45.