China trade data improves while Greece parliament approves 2013 budget

News at the weekend that the Chinese trade surplus hit a four year high with an increase in exports to 11.6% has helped assuage concerns that the Chinese economy is slipping back.

Coming on top of better than expected industrial production and retail sales numbers last week investors will be hoping that an increase in demand from one of the world’s biggest economies will prompt a turnaround in recent sentiment, which has increasingly been risk averse.

The better news about China has been partially offset by a weak Q3 GDP number from Japan, which shrank 0.9% raising the prospects of further piecemeal measures to stimulate the Japanese economy from the Bank of Japan.

Another key week for Europe begins with last night’s decision by the Greek parliament to approve a budget for 2013, by 167 and in so doing overcoming the latest obstacle in a long line of hurdles in the long running saga that has marked the debt crisis in Europe since Greece got its first bailout in early 2010.

With its cash reserves almost depleted and a €5bn t-bill rollover later this week the hope is that this will be enough for EU Finance ministers, meeting in Brussels today, to sanction the release of the next tranche of aid.

Unfortunately things are never that simple with arguments raging amongst EU ministers about how best to get Greece’s runaway debt levels under some semblance of control, without the need to find any more money. A difficult prospect when a two year extension is likely to require another €30bn.

German finance minister Wolfgang Schaeuble has already indicated that there is unlikely to be any agreement from today’s meeting given disagreements between EU nations about how to go about providing this extension while the long awaited EU/ECB/IMF troika report is apparently still not available.

With the IMF refusing to play any further part in future bailouts unless EU governments or the ECB set out a restructuring plan to make Greece’s debt path sustainable, the pressure is on to find a solution.

The ECB has already ruled out considering any form of restructuring due to it being tantamount to monetary financing, with President Draghi last week saying that the ECB is done with Greece, which leaves EU leaders with the thorny problem of trying to sell the idea of more time and more money to a country that has consistently failed to meet its fiscal targets.

Other key events in Europe this week include the latest iterations of Q3 GDP growth for the Eurozone as well as Germany and France and they aren’t expected to be particularly encouraging reading.

The UK economy is also set to come under scrutiny with the latest inflation numbers expected to show a slight increase tomorrow, while the latest Bank of England inflation report may also show increasing risk of rising price pressures over the next few months, which could well explain some of the reasoning by last week’s pause in QE.

EURUSD – the euro continues to look soft, Friday’s low at 1.2690 bringing it closer to the 1.2650 level and 100 day MA. Just below that we also have 1.2605 which is 50% retracement of the 1.2045/1.3170 up move.
To alleviate the downward pressure the needs to get back above the 200 day MA at 1.2825.
A rebound needs to overcome the 1.2900 level to stabilise and target 1.3000.

GBPUSD – the break below support and the October lows at 1.5950 last week opens up the risk of further losses towards the 200 day MA at 1.5850.
A break below this key level has the potential to open up a move towards 1.5790 and 1.5660.
Rebounds need to get back above the previous support level at 1.5960 level to retarget last week’s high at 1.6050.
The pound needs to get above 1.6080 to open up a move back towards 1.6180.

EURGBP – the 50% retracement of the up move from 0.7755 lows to the 0.8165 highs at 0.7955 has held so far with a bullish daily candle on Friday suggesting the potential for a rebound.
We need a break of resistance at 0.8030 to confirm a retest of the 0.8075 31st October highs; otherwise the trend remains for a lower euro, towards 0.7920.

USDJPY – the break below the 79.75 level undermines the bullish scenario once more with Friday’s low at 79.00 a 50% retracement of the up move from the 77.25 lows to the 80.70 highs. A break here opens up 78.55.
The US dollar needs to recover back above 79.80 to retarget the 80.70 level.