Chinese data surprises on the upside, Fed meeting to take center stage

Encouraging Chinese data keeps flowing (Arnaud Masset)

The Chinese renminbi was better bid against the USD this morning amid the publication of solid monthly data from China that points to a stabilisation of the world’s second largest economy. USD/CNY eased to 6.90 in overnight trading compared to yesterday’s close of 6.9068. Retail sales surprised substantially to the upside with the measure printing at 10.8%y/y in November versus 10.2% median forecast and 10% in the previous month. Industrial production came in also above consensus as it expanded 6.2%y/y, beating expectations of 6.1%. Finally, fixed asset investment remained stable at 8.3%y/y, confirming the consolidation initiated earlier this summer. However, this encouraging data should be taken with a grain of salt as state-owned business and infrastructure projects remained the biggest contributor (+20.2%y/y) while private investment companies’ investment grew 3.1%y/y. The trend is however changing in the right direction with the first decreasing steadily since April this year, while the latter has moved upward from a low of 3.10% in July.

All in all, the recent data from China suggests that the efforts of the central bank together with the government are finally showing some results. However, we still believe it is a relatively premature to celebrate a win for China’s economy which is on a constant fix of government support. Therefore, we feel that there is some room for some yuan appreciation. Indeed, the debasement of the yuan throughout 2016 has given the economy a positive boost to and is helping the industrial sector to hold ground.

USD unwinds ahead of the Fed meeting (by Yann Quelenn)

Since the OPEC meeting crude oil has been pushing largely higher, as has the greenback. Strong oil prices are supporting inflation expectations as well as the Fed rate hike coming this week.

We believe that the dollar is likely to lose ground amid the Fed meeting this week, as the Fed will be cautious. We continue to believe that this hike will be done to save Fed’s credibility and that the American central bank will likely let inflation run for some time in order to kill the massive debt.

Currency-wise, markets are pricing a 100% likelihood of a rate hike and as we think that there is no clear incentive to remain long dollar at the moment, the downside risk on the greenback is clearly significant.

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EURUSD

EUR/USD is pushing slightly higher ahead of the Fed meeting. Yet, hourly resistance is far away given at 1.0874 (08/12/2016 high). Support can be found at 1.0506 (05/12/2016 low). Buying pressures seem nonetheless stronger around 1.0600. Expected to keep pushing slightly higher. In the longer term, the death cross indicates a further bearish bias despite the pair has increased since last December. Key resistance holds at 1.1714 (24/08/2015 high). Strong support given at 1.0458 (16/03/2015 low) is on target.

GBPUSD

GBP/USD is riding higher within uptrend channel. Hourly support is given at 1.2302 (18/11/2016 low). Expected to show renewed pressures towards resistance at 1.2771 (05/10/2016 high). The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

USDJPY

USD/JPY's bullish momentum is very strong despite ongoing momentum. The pair has broken resistance given at 114.83 (16/02/2016 high). Hourly support can be found at 112.88 (05/12/2016 low). Significant support is given around 111.36 (28/11/2016 low). Stronger support lies at 108.56 (17/11/2016 low). Expected to see continued short-term bullish pressures. We favor 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 is trading lower. Key support is given at the parity. Hourly resistance lies at 1.0205 (30/11/2016 high). The technical structure suggests that the buying pressures are not enough. The road is wide-open for continued weakness. 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 nonetheless a long term bullish bias since the unpeg in January 2015.

Resistance and Support