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China’s GDP better-than-expected, USD under pressure

Forex News and Events

China not out of the wood yet (by Arnaud Masset)

At first glance Chinese growth data were rather encouraging for the second quarter of 2016 as the gross national product expanded 6.7%y/y in Q2, unchanged from the first quarter, but above market expectation of 6.6%. On a seasonally adjusted basis, the Chinese economy grew 1.8%q/q, beating median forecast of 1.6%, while first quarter’s figure was upwardly revised to 1.2% from 1.1% first estimate, suggesting that the world’s biggest economy weathered well the first half of the year and was even able to gain momentum, which is a good news the target for 2016 is 6.5%y/y

On the inflation front, headline CPI rose to 2.1% in the first and second quarter, compared to 1.5% in the December quarter last year. GDP deflator rose 1.80% in the second quarter from 0.49% in the previous, easing concerns about deflationary issues.

Nevertheless, the big picture is not that pretty as private investments continued to gain downside momentum as it rose only 2.8%y/y in June versus 3.9% in May and 5.2% in April. In the meanwhile state investment surged 23.5%y/y, versus 23.3% in May and 23.7% in April. Investment in real estate slowed down as well, suggesting that the government may have to increase the stimulus if it want to reach its yearly growth target by year end. Indeed the recovery was mainly driven by the property sector.

All in all, the substantial improvement in the inflationary outlook and continued capital outflow – estimated capital outflow kept increasing, reaching a total of USD343bn for the year as of end of May – should prevent the PBoC to ease substantially its monetary policy. On the other hand, the government will continue to provide further fiscal stimulus to soften the economic slowdown. We wonder however when the government will start seriously to address the overcapacity issues because it seems that deleveraging is not yet a priority.

Fed Lockhart upholds his two-rate hike view (by Yann Quelenn)

What exactly is the Atlanta Fed President trying to do? Yesterday he stated that two rate hikes are still possible this year. However, when questioned on their inaction, Fed policymakers blame the cold winter, the oil prices turmoil and now the Brexit for causing too much uncertainty. Markets are beginning to really question the credibility of the central bank, pricing in the possibility of a rate cut by the end of 2017 (even though this remains unlikely at the moment).

In our view, it is clear that there will be no rate hike this year. US data is way too mixed, inflation is far from the 2% target and labour data, which has been a good point over the last few years is starting to provide some concerning signals, such as the recently volatile NFPs. The US is clearly not ready to increase rates and the global outlook is buying some time for Fed policymakers. The dollar should still be driven on Fed rates’ expectations and therefore suffer from the Fed’s inaction.

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AUD/USD – Monitoring Uptrend Channel. AUD/USD - Monitoring Uptrend Channel.

Today’s Key Issues Country / GMT
Jun PPI MoM, last -0,40% DKK / 07:00
Jun PPI YoY, last -3,90% DKK / 07:00
Apr Unemployment Rate, exp 9,90%, last 10,10% TRY / 07:00
Jun Trade Balance NOK, last 6.6b NOK / 08:00
Jul 8 Money Supply Narrow Def, last 8.51t RUB / 08:00
May Trade Balance Total, last 4520m EUR / 08:00
May Trade Balance EU, last 918m EUR / 08:00
Jun Central Gov’t Budget Balance, last 3.66b TRY / 08:00
May Construction Output SA MoM, exp -1,20%, last 2,50% GBP / 08:30
May Construction Output SA YoY, exp -3,50%, last -3,70% GBP / 08:30
May General Government Debt, last 2230.8b EUR / 08:30
May Trade Balance SA, exp 25.0b, last 28.0b EUR / 09:00
May Trade Balance NSA, exp 25.0b, last 27.5b EUR / 09:00
Jun CPI MoM, exp 0,20%, last 0,40% EUR / 09:00
Jun F CPI YoY, exp 0,10%, last 0,10% EUR / 09:00
Jun F CPI Core YoY, exp 0,90%, last 0,90% EUR / 09:00
BOE Chief Economist Andy Haldane Releases Speech Text GBP / 09:30
Jul FGV Inflation IGP-10 MoM, exp 1,18%, last 1,42% BRL / 11:00
BOE’s Carney Speaks With Canadian McKenna on Climate Change CAD / 12:00
May Manufacturing Sales MoM, exp -0,80%, last 1,00% CAD / 12:30
Jun Retail Sales Advance MoM, exp 0,10%, last 0,50% USD / 12:30
Jun Retail Sales Ex Auto MoM, exp 0,40%, last 0,40% USD / 12:30
Jun Retail Sales Ex Auto and Gas, exp 0,30%, last 0,30% USD / 12:30
Jun Retail Sales Control Group, exp 0,30%, last 0,40% USD / 12:30
Jun CPI MoM, exp 0,30%, last 0,20% USD / 12:30
Jun CPI Ex Food and Energy MoM, exp 0,20%, last 0,20% USD / 12:30
Jun CPI YoY, exp 1,10%, last 1,00% USD / 12:30
Jun CPI Ex Food and Energy YoY, exp 2,20%, last 2,20% USD / 12:30
Jun CPI Index NSA, exp 241,1, last 240,236 USD / 12:30
Jun CPI Core Index SA, exp 247,524, last 247,074 USD / 12:30
Jun Real Avg Weekly Earnings YoY, last 1,10% USD / 12:30
Jul Empire Manufacturing, exp 5, last 6,01 USD / 12:30
Bank of Italy Releases the Quarterly Economic Bulletin EUR / 13:00
Jun Existing Home Sales MoM, last -2,80% CAD / 13:00
Bloomberg July Canada Economic Survey CAD / 13:00
Jun Industrial Production MoM, exp 0,30%, last -0,40% USD / 13:15
Jun Capacity Utilization, exp 75,10%, last 74,90% USD / 13:15
Jun Manufacturing (SIC) Production, exp 0,30%, last -0,40% USD / 13:15
May Business Inventories, exp 0,10%, last 0,10% USD / 14:00
Jul P U. of Mich. Sentiment, exp 93,5, last 93,5 USD / 14:00
Jul P U. of Mich. Current Conditions, exp 109,9, last 110,8 USD / 14:00
Jul P U. of Mich. Expectations, exp 83, last 82,4 USD / 14:00
Jul P U. of Mich. 1 Yr Inflation, last 2,60% USD / 14:00
Jul P U. of Mich. 5-10 Yr Inflation, last 2,60% USD / 14:00
Fed’s Williams Speaks at Closed Event in Cambridge USD / 17:00
Fed’s Kashkari and Bullard Speak at OMFIF Meeting in St. Louis USD / 17:15

The Risk Today

Yann Quelenn

EURUSD EUR/USD continues to move slightly higher. Hourly supports are given at 1.1002 (08/07/2016 low) and 1.0913 (06/07/2016 low) while hourly resistance is located at 1.1186 (05/07/2016 high). Stronger resistance is given at 1.1479 (06/05/2016 high). Sharp moves do not have to be ruled out as there are still a lot of uncertainties on asset pricing in the market. Expected to show sideways price action. In the longer term, the technical structure favours a very long-term bearish bias as resistance at 1.1714 (24/08/2015 high) holds. The pair is trading in range since the start of 2015. Strong support is given at 1.0458 (16/03/2015 low). However, the current technical structure since last December implies a gradual increase.

GBPUSD GBP/USD’s upside pressures look strong. Hourly resistance at 1.3341 (04/07/2016 high) is broken. Hourly support can be found at 1.3106 (14/07/2016 low). Uncertainties are important on the market, we absolutely do not rule out further decline. The long-term technical pattern is negative and favours a further decline as long as prices remain below the resistance at 1.5340/64 (04/11/2015 low see also the 200-day moving average). Key support at 1.3503 (23/01/2009 low) has been broken and the road is wide open for further decline.

USDJPY USD/JPY has finally erased the 105-mark. Hourly supports are located at 103.91 (13/07/2016 low) and at 100 (06/07/2016 low). Expected to keep increasing towards resistance at 106.84 (23/06/2016 high). We favour a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

USDCHF USD/CHF keeps on pushing lower. The road is wide-open to further decline towards hourly support at 0.9685 (05/07/2016 high). Hourly resistance lies at 0.9894 (12/07/2016 high). In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours a long term bullish bias since last December.

Resistance and Support:

EURUSD
1.1479
1.1428
1.1186
1.1140
1.0913
1.0822
1.0458
GBPUSD
1.5018
1.3981
1.3534
1.3439
1.3106
1.2798
1.1880
USDCHF
1.0328
1.0093
0.9956
0.9789
0.9685
0.9522
0.9444
USDJPY
111.91
107.90
106.84
105.93
103.91
99.020
96.570

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China’s GDP better-than-expected, USD under pressure Reviewed by on . Forex News and Events China not out of the wood yet (by Arnaud Masset) At first glance Chinese growth data were rather encouraging for the second quarter of 201 Forex News and Events China not out of the wood yet (by Arnaud Masset) At first glance Chinese growth data were rather encouraging for the second quarter of 201 Rating:
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