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US dollar lost ground in post-NFP environment, mixed Chinese data, Eurozone: between financial and political uncertainties

- Chinese data clearly indicates economy is struggling to keep the pace in spite of repeated PBOC interventions
- Japanese data still coming in in the soft side, with USDJPY that may weaken further
- Australia stabilising economy is pushing AUDUSD pair north, although we remain cautious ahead of US data due on Friday
- EURUSD, traders waiting for the next round of US economic data (eg next week CPI) before taking aggressive positions on the pair
- Mario Draghi will speak today at the Bank of England. It is reasonable to think that the overall tone will remain dovish
- Eurozone is not only facing financial issues but also political instability (Greece, Portugal, Spain) that could damage its existence
- EU Government Bonds higher yields are diminishing EB QE efficiency
In the Asian session most regional equity markets traded range-bound ahead of a fresh batch of Chinese economic data. The data was not very helpful, coming in fairly mixed. Retails sales printed at 11%y/y versus 10.9% expected and previous read, while industrial production came in below expectations at 5.6%y/y versus 5.8% consensus. Data clearly indicates that the Chinese economy is struggling to maintain the pace in spite of repeated interventions by the PBoC. Another round of Chinese data is due later today around lunch time: New Loans, Money Supply and FDI. The Shanghai Composite edged up 0.28%, while the tech-heavy Shenzhen Composite soared 1.97%.
In Japan, data continues to come on the soft side. Preliminary estimates indicate that machine tool orders contracted by 23.1%y/y in October after a drop of 19.1% in the previous month. On a month-over-month basis, the indicator fell 6.3% on weak Chinese demand. However, the market was prepared for such an outcome; after all, investors are well aware that the Japanese economic machine is jammed and that the BoJ is fooling no one with its overly optimistic comments. USD/JPY lost some ground in Tokyo but found a strong support at around 123. From our standpoint, the risk remains on the downside for the yen, we therefore maintain our bullish view on USD/JPY. On the equity front, the Nikkei edged up 0.10% and the Topix increased 0.37%.
Australia’s Westpac consumer confidence index advanced 3.9%m/m (s.a.) in November after an increase of 4.2% in the previous month. Consumer confidence continues to improve as the Aussie economy is showing signs of stabilisation against the backdrop of falling global demand for commodities, especially from its biggest trade partner, China. Yet the pace of increase is slowing. AUD/USD enjoyed a nice ride in the Tokyo session as it climbed to 0.7078, up 0.75%. We remain cautious ahead of US data due on Friday as a better-than-expected reading could further fuel expectations for a December rate hike, which would weigh heavily on the pair. Shares rose 0.46% in Sydney.
***Yann Quelenn, Market Analyst: “ECB president Mario Draghi will speak today at the Bank of England. It is reasonable to think that the overall tone will remain dovish. Draghi has dropped multiple hints over the last month that the pace of the quantitative easing program will be increased and that it will be extend beyond September 2016 if needed. Markets have now already priced in uncertainties about the central bank’s program. New Eurozone data will be closely analysed to appraise the true effectiveness of the program. Today’s meeting will also be well scrutinised, as the single currency struggles with internal political issues. In Portugal, the anti-euro leftist has been banned by Cavaco Silva from creating its own government sending the message that the European Union should be more important than democracy. In Spain, Catalonia’s latest measures show they are really willing to push for independence.
The truth is that the Eurozone is not only facing financial issues but also political issues that could damage its existence. The refugee crisis is of course another divisive issue, proving a veritable stress test for the unity of the union. Whereas the free circulation of people is one of the primary agreements of the union, the protection of the countries’ sovereignty now looks far much more important. A barrier between Austria and Slovenia is a perfect illustration.
As a result Eurozone government bonds yield higher and this diminishes the efficient of the ECB quantitative easing program. Hence, Portugal’s 10-year bond reached its highest level since July. We remain clearly bearish on the EURUSD.”***
In the wake of the astonishing NFP report, EUR/USD is moving sideways between 1.0675 and 1.08 as traders await the next round of economic data from the world’s biggest economy. Next week CPI report will gather a lot of traction as sign of pick-up will be interpreted by investors as a clear sign for lift-off in December. Today traders will be watching ILO unemployment rate and jobless claims from the UK; MBA mortgage application from the US; Business manufacturing and food prices form New Zealand.

Wednesday, 11 Nov, 2015 / 9:33

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