China's trade data disappoints

Forex News and Events

Imports slump (by Peter Rosenstreich)

Disappointing Chinese trade data has taken the wind out of the dominant risk recovery story. China trade surplus was solid, yet weak imports raised concerned that the engine of economic growth remains in first gear. The weak import read again highlights that the domestic economic situation remains fragile. On the topline, trade surpluses expanded to $60.3bn in September against concerns for a tightening to $48.2bn. China’s imports collapsed 20.4% in September, lower than the expected fall of 16.0% and following the deterioration of 13.8% in August. Imports into China from ASEAN dropped 26.6% and imports from Japan dropped 19.3%. However, exports came in slightly better falling only -3.7% y/y against expectations for a contraction of -6.0% y/y. The negative reaction was clear in commodity currencies. China is Australia and New Zealand’s largest export destination by far, therefore the weaker read suggests that the current recovery rally has limited upside scope. NZDUSD dropped from 0.6715 to 0.6657 with the bearish target of 0.6586 in traders’ sights. Traders ignored the NAB business confidence, which increased to 5 in September against a 1 in August, to focus on the weaker China results. AUDUSD declined from 0.7364 to 0.7294 on the soft Chinese import numbers. AUDUSD traders will now be focused on the 0.7220 support (38% Fibo retracement from Sept rally), while 0.7380 will cap the upside. That said, taking a midterm view the measure taken (fiscal and monetary actions) by Chinese policy makers will stabilize domestic demand, allowing imports to improve. Eventually lifting regional trading partners.

German ZEW set to decline (by Yann Quelenn)

German economic conditions are declining. The ZEW, economic sentiment indicator, is likely to reveal the truth behind this statement today. Data is expected to print lower than the previous figure of 67.5 in September.

Earlier this morning, the final inflation data for September was released and is now back to zero. The decline in energy prices has weighed on the CPI. The fundamentals remain positive nonetheless, as Germany has been able to run a budget surplus for the past three years. However the current Volkswagen issue is becoming increasingly serious. As of now there are approximately 500’000 Americans VW owners whose cars are now illegal to drive. In addition, German exports fell 5.2% in August as the overall German car industry, which includes a non-negligible number of suppliers are hit by this scam. There are growing reasons to worry.

Nevertheless, Germany remains the most competitive European economy. From our point of view, Germany is the only European country capable of controlling its debt-to-GDP ratio, which remains below 80%. Other European countries struggle with the inability to debase the currency and see their debt growing. We remain bearish on the EURUSD and we target the pair to head back towards 1.1200.

The Risk Today

Yann Quelenn

EUR/USD keeps pushing higher and is now consolidating. Hourly resistance can be found at 1.1460 (18/09/2015 high). Support can be found at 1.1087 (03/09/2015 low). Stronger support lies at 1.1017 (18/08/2015 low). In the longer term, the symmetrical triangle from 2010-2014 favored further weakness towards parity. As a result, we view the recent sideways moves as a pause in an underlying declining trend. Key supports can be found at 1.0504 (21/03/2003 low) and 1.0000 (psychological support). We remain in a downside momentum.

GBP/USD's momentum is fading. Hourly resistance can be found at 1.5383 (22/09/2015 low). Hourly support can be found at 1.5087 (05/05/2015 low). Stronger support can be found at 1.4960 (23/04/2015 low). In the longer term, the technical structure looks like a recovery. Strong support is given by the long-term rising trend-line. A key support can be found at 1.4566 (13/04/2015 low).

USD/JPY is moving sideways. There is no clear momentum. The pair is still moving around the 200-day moving average. Hourly support is given at 118.61 (04/09/2015 low). Stronger support can be found at 116.18 (24/08/2015 low). Hourly resistance can be found at 121.75 (28/08/2015 high). A long-term bullish bias is favored as long as the strong support at 115.57 (16/12/2014 low) holds. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) is favored. A key support can be found at 116.18 (24/08/2015 low).

USD/CHF is declining but has failed to hold below 0.9600. Hourly resistance can be found at 0.9844 (25/09/2015 high). Expected target of the hourly support at 0.9528 (18/09/2015 low). In the long-term, the pair has broken resistance at 0.9448 suggesting the end of the downtrend. This reinstates the bullish trend. Key support can be found 0.8986 (30/01/2015 low).

Resistance and Support: