Mixed data taken negatively, market plays dollar-strength, forces GBPUSD below 1.52

FundamentalView

We enter the market space today with increased volume of concern surrounding the global macroeconomic space. Overnight we had disappointing data from China in the form of the lowest Inflation print for 5 years at 0.8% against the expected 1.0%. This has been attributed to a fall in food prices and a slow-down in domestic demand, something which has also hurt the Australian dollar which sends much agricultural material to China. This has some empirical evidence as we saw a large trade deficit in China yesterday. With Chinese growth looking weak and many speculating the eventuality of a Greek exit it has sparked a move towards risk off in the currency space, allowing the EURUSD to break lower once again to test support around yesterday’s lows. The GBPUSD is also on its lows and failing to make any headway towards sterling strength. This has not, however, been prevalent in the fixed-income and equity space. There has been no real appetite to push higher in T-notes after Friday’s payrolls release, perhaps indicating that the US rate-hike is taking precedence over the lack of global growth. This has surprised some, traders being aware that the US posted weaker than expected growth last month.

Today’s View

This morning saw the UK post mixed Production data, posting higher than expected manufacturing data but lower than expected Industrial production. The mixed data has been taken negatively in the medium term and market participants have been quick to play the dollar-strength proxy and force GBPUSD below the 1.52 handle. Since then we have seen disparity in the EURUSD and the GBPUSD, with GBPUSD pulling back above the technical resistance and the EURUSD remaining comfortably lower. Ahead we have US Wholesale Inventories, expected at 0.10%. This data point is for December but we could, due to the Christmas period, see a jump in this data point. Please observe this release as it is the only important release of the afternoon, due after cash open. 

Alternative view

Although we agree that the risk-off sentiment will continue, as T-notes have been more concerned with the impending US Rate hike we could see t-notes refuse a move higher as yields begin to reflect short term interest rates. The lack of reaction we have seen in European bourses to the heightened risk of a Greek exit is also cause for concern. Traders should remain vigilant when trading to any development or change in market sentiment.