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Commodity currencies consolidate on fading risk-off sentiment, German ZEW set to weaken

- China, the big question is determining which part of the data is actually accurate
- Fading risk-off sentiment and consolidating crude oil prices also helped financial markets to take a breather
- USD/CAD eased pausing after a mad run. A period of stabilisation looks likely and would allow investors to take a breather while reassessing the situation
- AUD/USD is currently testing the hourly resistance standing at around $0.6930. The Kiwi is also consolidating as it failed to break the strong support lying at around 0.64-0.6430
- Weakening German conditions could trigger discussions about further easing by the ECB, although not at this week’s meeting
- We remain bearish on the EURUSD and target the pair to head back towards 1.0800.
 
Financial markets have stabilised amid “reassuring” economic data from China. In December, industrial production slid to 5.9%y/y versus 6.0% consensus, down from 6.2% in the previous month. Retail sales also missed estimates and rose 11.1%y/y, below median forecast of 11.3% and a previous reading of 11.2%. During the December quarter, the Chinese economy grew at the slowest pace since the financial crisis. GDP rose 6.8% in the fourth quarter compared to a year earlier, below consensus and a previous reading of 6.9%. Finally, the economy expanded 6.9%y/y in full-year 2015, roughly in line with Beijing’s target. The big question now is determining which part of the data is actually accurate.
 
Fading risk-off sentiment and consolidating crude oil prices also helped financial markets to take a breather. Asian regional equity markets are blinking green across the screen with mainland Chinese stocks leading the charge. The Shanghai and Shenzhen Composites are both up more than 3% (3.22% and 3.57% respectively). In Japan, the Nikkei rose 0.55%, while the broader Topix edged up 0.18%. Hong Kong’s Hang Seng soared 2.95%, while in Singapore the STI was up 1.30%. The recovery in commodity prices - copper is up 2.70%, iron ore +2%, Brent +2.56% and WTI 0.75% - pushed Australian mining stocks higher. Regis Resources was up 7.10%, Evolution Mining jumped 6.05%, while BlueScope Steel climbed 5.68%. The ASX/S&P was up 0.91%, while in New Zealand equities were up 0.37%. In Europe, futures are also wearing green with the Euro Stoxx 50 up 2.08%, the Footsie +1.44% and the DAX +2.18.
 
In the FX market, commodity currencies took the lead with the loonie surging 0.68% against the greenback. USD/CAD eased to 1.4460, after hitting 1.4584 in New York yesterday, pausing after a mad run of roughly +6% which took the pair from 1.38 to 1.46. A period a stabilisation looks likely and would allow investors to take a breather while reassessing the situation. AUD/USD also gained 0.68% against the US dollar as it erased yesterday’s losses. The Aussie is back above $0.69 and currently testing the hourly resistance standing at around $0.6930. The Kiwi is also consolidating as it failed to break the strong support lying at around 0.64-0.6430 (low from November 18th and Fibo 61.8% on 2009-2014 rally). NZD/USD climbed 0.19% in Wellington and is now trading around 0.6470.
 
***Yann Quelenn, market analyst: German ZEW set to weaken: Over the last two months German ZEW expectations have bounced back on hopes of a global recovery. Yet, global turmoil is far from over. China is in the middle of a financial crisis which is weighing on overall sentiment. The figure is expected to decline to 8 points from prior data which came at 16.1.
 
Earlier this morning, final German inflation data for December was released and remains at 0.3% year-on-year. Yet, we believe that the decline in energy prices should weigh more heavily on Germany's CPI. The fundamentals remain positive as Germany has been able to run a budget surplus for the past three years. Concerns persist as November retail sales and exports printed below expectations at 2.3% y/y vs 3.7% y/y and 0.4% m/m vs 0.5 m/m. Weakening German conditions could trigger discussions about further easing by the ECB, although not at this week’s meeting. We remain bearish on the EURUSD and we target the pair to head back towards 1.0800.”***
 
Today traders will be watching producer & import prices from Switzerland; current account balance from Italy; CPI, RPI, PPI and Marc Carney’s speech from the UK; CPI from the euro zone; ZEW survey from Germany; CPI from New Zealand.

Tuesday, 19 Jan, 2016 / 10:36

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Source : http://en.swissquote.com/fx/news

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