The Chinese GDP YoY figure has missed expectations by a tenth of percent, placing at +6.5%, which took the number to the lows of the 1st quarter of 2009. The European Commission has given some strong remarks to the Italian government, over the submitted draft of their budget plan.
During the Asian morning today, China has released its GDP figures on QoQ and YoY basis. The quarter number came out in line with expectations at +1.6%, but unfortunately for them, the YoY figure ticked down by a tenth of a percent to +6.5%. In comparison to the previous numbers, this is the lowest that it has dropped since the after-crisis period in 2009. Certainly, we cannot exclude the fact that the US tariffs have played a role here in driving the Chinese growth down. If nothing changes between the US and China and their trade wars, then we could potentially see the second largest economy to continue slowing down going further.
In addition to the Chinese YoY GDP slowdown, the country’s industrial production also fell, going from the previous +6.1% to +5.8%, even though the expectations were for it to come out near +6.0%. But at least one positive piece of data that came out from China, was its retail sales on a YoY basis, which showed a better than expected number of +9.2%, against forecasted +9.0%. Still, China will remain vulnerable to all trade wars issues, as US continues to be its biggest trade partner, for now. But we cannot leave out the fact, that not only the Chinese economy is suffering from these tensions between the two countries, it’s the US businesses and farmers that are taking a hit as well. They are also dependant on the Chinese orders, so when China responds with countermeasures, the US has to then have compensation schemes in place, in order to keep the business running, which leads to additional spending, of course.
If it’s not Brexit, then its Italy’s deficit. Yesterday, the European Commission responded to Rome that the Italian budget draft is a serious violation of the EU budget rules, which in a way, gives an idea for everyone, what the official EU response could be to Italy’s budget plan draft. The Commission addressed to the Italian government, quote: “that planned government spending was too high, the structural deficit - excluding one-offs and business cycle effects - would rise instead of fall, and that Italian public debt would not fall in line with EU rules”. Another interesting point made by the Commission was that Italy ignored the negative opinion of the Italy’s Parliamentary Budget Office on the budget’s macroeconomic assumptions. The European Commission requested Rome to reply with their answers on the given budget plan notes by Monday next week.
Mario Draghi also spoke during the EU summit on Thursday, where he did not address Italy directly, but made it clear to everyone that he was talking about the current ongoing issue with the Italian budget plan. The ECB president stated, quote: “There is no evidence that undermining the European Union's budget limits on borrowing leads to prosperity, but it is clear that such actions are costly for all in the single currency area”.
Yesterday, the euro traded lower against a basket of other major currencies, but nevertheless, remained strong against the NOK, SEK and the GBP. The last one spooked its buyers due to the uncertainty that is up in the air right now around the Brexit issue.
Later on in the day, Canadian CPIs will take the spotlight. The core and the headline YoY numbers are forecasted to come out at +1.8% and +2.7% (respectively) for the month of September. This is a tenth of a percent higher than the previous on the core figure, but a tenth lower on the headline. Nevertheless, both are still in line with Bank of Canada’s target range of 1-3 percent. At the same time, Canada will release their MoM retails sales numbers that are expected to have gone up from the previous +0.3% to +0.5% for the month of August. Still, this would be a low number, comparing it to the highest that we saw this year for the month of May, which came out at +2.2%.
EUR/USD took a beating yesterday, which forced it to sell off and test the support level near the 1.1450, which held the rate from dropping further. Certainly, the euro continues to look weak against a bunch of major currencies and the USD is one of the main ones. Even if we could see a bit of correction to the upside, still, given that the Italian budget issues are not moving forward and just creating more tensions within the EU, we believe the EUR/USD could remain weak at least for a while.
For us to start looking at further declines, we would need to see a break below, not only yesterday’s low of around 1.1450, but also below the 1.1430 level, marked near the low of the 9th of October. This way, we could then aim for a possible test of the 1.1395 area, which was the low of the 20th of August, a break of which could send the pair much lower towards the next potential resistance zone at 1.1345. That zone is marked near the low of the 16th of August.
On the upside, in order to get comfortable with the EUR/USD moving higher, we would need to see a break above the 1.1525 level, which could open the path back to the 1.1580, which was the high of Wednesday this week. A further acceleration of the rate could lead the pair to test the 1.1610 barrier that EUR/USD keeps struggling with and cannot close above it.
USD/CAD will be on a close watch today, due to the Canadian inflation data which we will get later on in the day. Looking at the USD/CAD 4-hour chart, the pair has been on a good climb higher this week, which could continue for the time being. The only issue here with the upside is that the pair continues to trade below a medium-term downside resistance line drawn from the peak of the 27th of June. The line could limit the upside and keep the bulls from pushing USD/CAD further up. From the short-term perspective, we could see USD/CAD traveling a bit more to the upside, but as long as the above-mentioned downside line remains intact, we will stick to the downside.
A break above the yesterday’s high near the 1.3080 could invite a few more bulls to join in the action and drive USD/CAD towards a test of the 1.3110 area, or even the aforementioned medium-term downside resistance line, where the rate could stall. If the pair struggles to overcome that line, this is where the bears could see a good opportunity to take advantage of the higher rate and drag USD/CAD back down again.
Alternatively, if the downside line gets broken, we could see USD/CAD traveling higher later on. But for a better confirmation of the possible upside scenario, we would need to see a break above the 1.3130 level, marked by the intraday swing low of the 11th of September. If the bulls don’t stop there, slightly above that level lies the next potential strong area of resistance at 1.3225, marked by the peak of the 6th of September.
The content we produce does not constitute investment advice or investment recommendation (should not be considered as such) and does not in any way constitute an invitation to acquire any financial instrument or product. JFD Brokers, its affiliates, agents, directors, officers or employees are not liable for any damages that may be caused by individual comments or statements by JFD Brokers analysts and assumes no liability with respect to the completeness and correctness of the content presented. The investor is solely responsible for the risk of his investment decisions. Accordingly, you should seek, if you consider appropriate, relevant independent professional advice on the investment considered. The analyzes and comments presented do not include any consideration of your personal investment objectives, financial circumstances or needs. The content has not been prepared in accordance with the legal requirements for financial analyzes and must therefore be viewed by the reader as marketing information. JFD Brokers prohibits the duplication or publication without explicit approval.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with the Company. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please read the full Risk Disclosure.
Copyright 2018 JFD Brokers Ltd.