Disclaimer: CMC Markets is an execution-only service 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. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
Chinese trade data set to provide positive lift.
00:00, 08 August 2013
While we got another negative finish in the US last night it looks like some better than expected Chinese trade data is likely to translate into a positive open for European markets this morning. Chinese exports rose more than expected, by 5.1% and imports also jumped as well by 10.9%. while there has been an awful lot of debate about the accuracy or otherwise of some of this trade data, some of the most recent measures by Chinese authorities to lower tax rates for small business could well be having a stimulative effect. To confirm this better picture tomorrow’s industrial production number needs to confirm today’s improvement. Also providing a positive lift this morning the Bank of Japan left its current monetary policy unchanged while also keeping its economic outlook intact for the Japanese economy. Later this morning the ECB will be publishing its latest monthly report of economic conditions in the euro area and it is likely to reiterate the comments from ECB President Mario Draghi made at last week’s press conference pointing to a recovery in the European economy in the latter half of this year. Markets are also likely to continue to absorb yesterday’s moves by new Bank of England governor Mark Carney and the central bank’s new policy of forward guidance-lite. It had been widely expected that new Bank of England governor Mark Carney would announce some form of forward guidance on interest rate policy and he didn’t disappoint yesterday. There were some important caveats to the guidance issued to ensure that the Bank gave the appearance of maintaining its mandate on inflation. The link to the unemployment rate wasn’t too much of a surprise as it was one of the measures being widely touted, though the 7% level could be achieved quicker than the Bank of England currently envisages. Since December 2011 unemployment has fallen from 8.4% to 7.8%, which suggests that if the current rate of decline is replicated we could well see unemployment fall below 7%, well before the 2016 deadline. The creation of 750,000 new jobs seems a lot but if the economy continues to recover, a big ask admittedly, you never know. In this regard he's been quite clever not to box himself in, by adding caveats linked to the level of CPI inflation and financial stability. If inflation threatens to stay at current levels and the economy continues to improve then we could get a rate rise well before 2016. The key question remains then is this guidance dovish or not? Judging by the market reaction it's not as dovish as it could have been as the committee could have chosen 6.5% as a threshold, which could have seen the pound drop more sharply than it did in the aftermath of the decision. It would therefore appear that there are concerns about inflation given the presence of these so called knock-outs and it is these along with the conservative 7% unemployment target that have helped underpin the pound and send it to six week highs against the US dollar. Mr Carney also skilfully dodged a question about the unanimity of the decision to issue the guidance, so we will just have to wait until the minutes are issued next week to see if they were any signs of dissent, or points of debate. The only US data out this afternoon is the latest weekly jobless claims numbers which are expected to increase slightly from last week’s better than expected 326k, rising slightly to 336k. EURUSD – the euro continues to remain resilient pushing above 1.3300 ever closer to trend line resistance at 1.3350 from the 1.4940 highs in 2011. Beyond that we also have the 200 week MA at 1.3410. 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. Only above the 200 week MA at 1.3410 suggests the potential for further gains. GBPUSD – the pound finally managed to bust through the 1.5400 level bringing us closer to the 1.5540 level and the 200 day MA. Having overcome the 50 and 100 day MA the pound should find support around the 1.5300 area. Back below 1.5300 retargets 1.5170, and then 1.5000. A move below this level re-opens the July lows at 1.4810. EURGBP – yesterday’s decline has once more brought us back to the 0.8580 area after a short squeeze back to 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 break below the 97.50 area yesterday has seen the move lower towards 96.20, as warned yesterday. This continued weakness 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.