After the disappointment of Friday’s US jobs report and a rather turbulent Syria induced end to the week, Europe’s markets look set to start the week on the front foot this morning after better than expected data from China over the weekend, and Japan this morning.
To begin with Chinese trade data for August pointed to a continued recovery in the world’s second biggest economy at the weekend.
Exports rose by 7.2%, more than the 5.5% estimate driven by increased demand from the US and Europe. This was tempered somewhat by a smaller than expected rise in imports, which came in at 7% which would appear to suggest that the drive to stimulate demand domestically is still encountering some difficulties.
Despite these concerns it would appear that the recent tax cuts and boosts in infrastructure spending announced by the Chinese government a few weeks ago are starting to have the required trickle-down effect and have raised expectations that GDP growth could come in slightly above the 7.5% consensus.
In Japan, the recent optimism about the economy continued over the weekend after the country managed to secure the 2020 Olympics, raising expectations of a confidence and a construction boost, while the latest quarterly Q2 GDP numbers came in at 0.9%, with business spending providing a significant boost, showing that the current expansionist policies of the new Japanese government continue to filter down through the economy into a strong recovery.
The Australian dollar has also enjoyed somewhat of a pop higher after the landslide weekend election of a new Prime Minister Tony Abbot, to replace the incumbent and now somewhat dysfunctional Labour Party who have ruled the country for the last six years. The new government is widely expected to be much more business friendly and expectations are high that the coalition will deliver on its promises to scrap carbon and mining taxes as well as cutting red tape.
Despite this positive data, sentiment is still likely to be driven by news flow surrounding Syria as US President Obama seeks to gain congressional approval for military action in response to the gas attacks in August, as well as continued speculation about the timing of the Fed’s tapering intentions after last Friday’s disappointing August jobs report.
Some have speculated that the fall in the unemployment rate to 7.3% makes it much more likely that the Fed will start their tapering program this month; however the continued fall in the participation rate as well as continued downward revisions to previous month’s data completely undermine the relevance of this particular statistic.
Ultimately we are probably no wiser as to the Feds intentions than we were a week ago.
Meanwhile in Europe, with little in the way of economic data today all eyes will be on Italy today after Prime Minister Letta’s comments at the weekend of the risk of fresh political turmoil this week as an Italian senate committee meets today to begin a debate that could mean Berlusconi’s expulsion from Parliament following his conviction for tax fraud.
Battle lines have already been drawn with the PDL threatening to bring down the government in the event that the expulsion takes place. The most likely outcome is likely to be some form of delay, deferring a final decision, given that neither party wants an election at this time.
EURUSD – last week’s chop at the end of the week has done us no favours with respect to the overall long term direction, though we did struggle to push back beyond the 1.3180 level after last weeks move below the 100 and 200 day MA at 1.3140. This keeps the potential for a move towards the 1.3000 area the more likely outcome. To negate this scenario the euro needs to recover back through 1.3180 to stabilise otherwise a move towards the 1.3000 level initially seems probable with a break there targeting the lows this year at 1.2750.
GBPUSD – despite Friday’s sharp rally we still remain below the key resistance and previous highs from August at 1.5715 as well as the big level at 1.5745 where we have the 100 and 200 week MA. While above trend line support at 1.5535 from the 1.4815 lows, and low 2 weeks ago at 1.5440 the trend remains positive. Only below the 1.5400 level argues for a sharper move towards 1.5340, and then 1.5260.
EURGBP – we just about managed to hold above the 0.8400 level, though we did make a new 8 month low at 0.8392, before recovering to close higher on the day, but still below the 200 week and 200 day MA’s. Only a break below the 0.8390 area argues for a move back towards 0.8320. Pullbacks should find some selling interest at around the 0.8485/90 area initially.
USDJPY – having failed at the 100.20/30 area last week the US dollar dropped back sharply towards the Ichimoku cloud support at the 98.80 level briefly dropping through it, before rebounding from the 98.50 level and closing the week above it. While above this support at 98.80 the bias remains for a move back towards the May highs at 103.75. With momentum starting to stall there is an increasing risk for a move back below 98.80 undermining this scenario and arguing for a test back towards the 97.00 level.
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