We saw equity markets snap a three day losing streak yesterday after an improvement in Chinese trade data for July raised hopes that the recent decline seen in economic activity in the world’s second biggest economy was about to turn around. Even so yesterday’s rebound was fairly tepid given recent doubts in some quarters about the accuracy of Chinese import and export data, which has been shown previously to be rather suspect. To reinforce the 10.9% rise seen in imports in particular, the markets shifted their attention to this morning’s industrial production and retail sales data for confirmation of yesterday’s import data. The expectation was that industrial production for July would come in at 8.9% and retail sales increase from 13.3% in June to 13.5%. The actual figures turned out to be better than that with industrial production coming in much hotter at 9.7%, confirming yesterday’s better trade numbers, though retail sales came in slightly below expectations at 13.2%, down from 13.3% in June. The inflation numbers also pointed to a mixed picture with CPI coming in at 2.7%, the same as June, while producer prices slowed their rate of decline, coming at -2.3%, staying in deflationary territory for the 17th month running. The biggest concern amongst these numbers here is the rise in food prices which make up a large proportion of the rise in CPI. These rose by 5% and as such are making it difficult for Chinese authorities to take any measures to loosen policy further, to boost growth. Market reaction in Asia to these numbers has been fairly mixed however the higher finish in the US is likely to be positive for the European open this morning, particularly given the better Chinese industrial production number. It’s been an extremely good few days for the pound this week, given some of the concerns about how dovish the Bank of England would be with respect to its policy recommendations at this week’s inflation report. Because expectations had been so low, sterling short positions have been royally squeezed in the past two days, as the pound hit 7 week highs against the US dollar. These gains are set to face a further test today with the release of the latest construction output numbers for June as well as the trade balance numbers. The expectation for today is that analysts are expecting a 1.9% decline in month on month construction output, which seems rather at odds with some of the more recent positive data. The trade deficit is expected to narrow slightly from £8.5bn to £8.35bn. In Europe we also have French manufacturing and industrial production for June, which is expected to rise 0.4%, a significant improvement in the sharp declines seen in the May numbers, though good news was pretty thin on the ground yesterday with a rather downbeat assessment of the European economy by the ECB and Italian bad loan provisions continuing to rise, and in the process placing greater scrutiny on the solvency of the Italian banking system. EURUSD – though we broke above the trend line resistance at 1.3350 from the 1.4940 highs in 2011 we have as yet been unable to push beyond the 200 week MA at 1.3410. A break through here and the June highs could well send the euro back to the 1.3720 area and the highs this year. Despite this resilience the downtrend bias remains, but we need to break below the 1.3150 area and the low two weeks ago at 1.3135 to achieve this. A break through here reopens the risk of a move towards the trifecta of supports at the 50, 100 and 200 day MA above 1.3050. GBPUSD – yesterday’s move higher took us to 1.5572, through the 200 day MA and trend line resistance at 1.5555, from the 1.6360 highs, but we have been unable to close beyond these levels, and as such downtrend from this year’s high remains intact. Only through 1.5600 argues for a move towards the 1.5750 area. Pullbacks look likely to find support around the 1.5410 area and below that at the 50 and 100 day MA around the 1.5300 area. EURGBP – the 0.8580 area remains a key support area and while above here the risk for a move higher remains towards the 0.8725 area. We need a break below the 0.8580 level to retarget a move back towards the 0.8520 area. USDJPY – the current bout of US weakness needs to hold above the 95.50 trend line from the February lows at 91.05. The US dollar needs to get back above the 97.50 area to stabilise. A break below 95.40 suggests further losses towards the 94.00 area last seen in June. Rebounds should find resistance at the 97.50 area, and behind that there is resistance at the 98.75/80 level where we now have cloud resistance. CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.