China's foreign Export last month was 9.9% below levels a year earlier, accelerating the decline from November's -8.7%. Imports lost 7.5% y/y. The foreign trade surplus was $78.0bn, down from $70bn a month earlier and $93.7bn 12 months ago.
The data marginally exceeded expectations but overall shows stagnant foreign trade activity during 2022, reminiscent of 2014 and 2015, which were tough years for China.
That said, the weak data from the last months of last year and the first months of 2023 promises to form a favourable basis for comparison, as the easing of restrictions during December and the almost complete removal of restrictions will revive economic activity.
In addition, there is a certain softening of the rhetoric of the US and Chinese trade representatives, which should also be favourable for foreign trade. It is also worth noting that commodity and energy prices are now noticeably lower than in the middle of last year, which will further revive activity.
The data marginally exceeded expectations but overall shows stagnant foreign trade activity during 2022, reminiscent of 2014 and 2015, which were tough years for China.
That said, the weak data from the last months of last year and the first months of 2023 promises to form a favourable basis for comparison, as the easing of restrictions during December and the almost complete removal of restrictions will revive economic activity.
In addition, there is a certain softening of the rhetoric of the US and Chinese trade representatives, which should also be favourable for foreign trade. It is also worth noting that commodity and energy prices are now noticeably lower than in the middle of last year, which will further revive activity.
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GBPUSD pullbacks despite surprise in GDP data
Britain is showing better-than-expected GDP performance, tempering expectations on the depth and duration of the looming recession.
Monthly GDP estimates showed growth of 0.1% in November after 0.5% in October, markedly better than the 0.2% contraction that had been expected. This was driven by a better-than-expected service sector performance, representing the lion's share of the UK economy. Construction also held off a decline in November, but the annual growth rate slowed to 4.0% compared to 5.9% a month earlier.
However, things are deteriorating in the industry. Industrial production has fallen for 8 of the last ten months. Although the rate fell markedly in the previous quarter, activity in November was 5.1% lower than a year earlier. The manufacturing sector is losing 5.9% YoY, holding around this rate since July.
Britain is showing better-than-expected GDP performance, tempering expectations on the depth and duration of the looming recession.
Monthly GDP estimates showed growth of 0.1% in November after 0.5% in October, markedly better than the 0.2% contraction that had been expected. This was driven by a better-than-expected service sector performance, representing the lion's share of the UK economy. Construction also held off a decline in November, but the annual growth rate slowed to 4.0% compared to 5.9% a month earlier.
However, things are deteriorating in the industry. Industrial production has fallen for 8 of the last ten months. Although the rate fell markedly in the previous quarter, activity in November was 5.1% lower than a year earlier. The manufacturing sector is losing 5.9% YoY, holding around this rate since July.
Although industry contributes less than 10% to the country's GDP, the dynamics of this sector are often ahead of the business cycle, being the first to take the hit when economic conditions deteriorate.
Initially, the market reacted to the monthly data release by buying the pound, pushing the FTSE100 to its highs for the year and only 0.7% from its historic peak in mid-2018. However, markets soon retraced the gains, which fits well with the desire to lock in some profits after the impressive progress of the past two weeks.
GBPUSD pulled back to 1.2175, despite the ‘golden cross’ formed two days ago (the 50-day MA overcame the 200-day MA). Despite the bullish signal, the pound exchange rate and British asset prices remain vulnerable to short-term pullbacks without breaking the upward trend. We cannot discuss breaking the trend until GBPUSD falls below 1.1900. However, it is more likely that a short-term correction into the 1.2000-1.2050 area will be followed by renewed buying after a short-term shakeout.
Initially, the market reacted to the monthly data release by buying the pound, pushing the FTSE100 to its highs for the year and only 0.7% from its historic peak in mid-2018. However, markets soon retraced the gains, which fits well with the desire to lock in some profits after the impressive progress of the past two weeks.
GBPUSD pulled back to 1.2175, despite the ‘golden cross’ formed two days ago (the 50-day MA overcame the 200-day MA). Despite the bullish signal, the pound exchange rate and British asset prices remain vulnerable to short-term pullbacks without breaking the upward trend. We cannot discuss breaking the trend until GBPUSD falls below 1.1900. However, it is more likely that a short-term correction into the 1.2000-1.2050 area will be followed by renewed buying after a short-term shakeout.
Is inflationary pressure diminishing?
The dust from yesterday's consumer price release has yet to settle, but a new inflation report raises uncertainty. The US import price index rose by 0.4% in December, in sharp contrast to the expected 0.9% decline. Annual inflation for this indicator accelerated from 2.7% to 3.5% against an expected slowdown to 2.1% YoY.
The first monthly price increase since June and the acceleration of the annual rate for the first time since March may reflect two worrisome developments.
The dust from yesterday's consumer price release has yet to settle, but a new inflation report raises uncertainty. The US import price index rose by 0.4% in December, in sharp contrast to the expected 0.9% decline. Annual inflation for this indicator accelerated from 2.7% to 3.5% against an expected slowdown to 2.1% YoY.
The first monthly price increase since June and the acceleration of the annual rate for the first time since March may reflect two worrisome developments.
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The first is the market's underestimation of how sticky inflation can be. Most market participants are now confident that prices will return to normal territory and that the Fed will turn to a rate cut before the end of the year. But such expectations are based on the chronically low inflation of the last decade, while the Fed is reeling from the inflation episode of the 1970s and 1980s. And the fresh release of import prices might be the first signal that the multi-year inflation pattern has changed.
A second, simpler explanation is the impact of a weaker dollar in recent months. The DXY lost over 10% from consolidation levels in October, and the Chinese renminbi appreciated by 8% at the same time, which put some pressure back on import prices. But in this case, the observed increase is a technical rebound with no impact on the overall slowdown in inflation.
A second, simpler explanation is the impact of a weaker dollar in recent months. The DXY lost over 10% from consolidation levels in October, and the Chinese renminbi appreciated by 8% at the same time, which put some pressure back on import prices. But in this case, the observed increase is a technical rebound with no impact on the overall slowdown in inflation.
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The bitcoin price has surpassed $21K, adding around 23% over the week. Ethereum jumped 20% to $1570. Other leading altcoins in the top 10 gained between 9% (BNB) and 50% (Solana).
The total crypto market capitalisation rose 18.4% over the week, approaching $1 trillion again.
The first cryptocurrency responded very well to technical signals. Since securing above the 50-day average on January 4, bitcoin has been closing all days with gains. A consolidation above the previous local high and a break of the downtrend resistance caused an acceleration in growth. BTCUSD closed above the 200-day average on Friday, contributing to the weekend's positive momentum.
Trading near the $21K level brought quotes back to the area before the FTX crash, and this is a new test of the local highs. Traders might want to be prepared that the market will need a short-term correction towards $19.5K before we see another momentum, as locally, Bitcoin looks overheated.
The total crypto market capitalisation rose 18.4% over the week, approaching $1 trillion again.
The first cryptocurrency responded very well to technical signals. Since securing above the 50-day average on January 4, bitcoin has been closing all days with gains. A consolidation above the previous local high and a break of the downtrend resistance caused an acceleration in growth. BTCUSD closed above the 200-day average on Friday, contributing to the weekend's positive momentum.
Trading near the $21K level brought quotes back to the area before the FTX crash, and this is a new test of the local highs. Traders might want to be prepared that the market will need a short-term correction towards $19.5K before we see another momentum, as locally, Bitcoin looks overheated.
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#WaveAnalysis
#Brent crude oil rising inside wave (b)
Likely to reach resistance level 87.00
Brent crude oil continues to rise after the earlier breakout of the resistance trendline from the start of November.
The breakout of this resistance trendline coincided with the breakout 38.2% Fibonacci correction of the previous downward impulse 1 from November.
Brent crude oil can be expected to rise further toward the next resistance level 87.00 (top of the previous short-term correction 2 and the target for the completion of the active wave (b)).
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#Brent crude oil rising inside wave (b)
Likely to reach resistance level 87.00
Brent crude oil continues to rise after the earlier breakout of the resistance trendline from the start of November.
The breakout of this resistance trendline coincided with the breakout 38.2% Fibonacci correction of the previous downward impulse 1 from November.
Brent crude oil can be expected to rise further toward the next resistance level 87.00 (top of the previous short-term correction 2 and the target for the completion of the active wave (b)).
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#WaveAnalysis
#USDJPY broke support level 130.75
• Likely to fall support level 126.50
USDJPY under the bearish pressure after the earlier breakout of the support level 130.75 (which has been steadily reversing the pair from last May).
The breakout of the support level 130.75 coincided with the 50% Fibonacci correction of the previous downward impulse from December.
Given the continuation of yen gains, USDJPY can be expected to fall further toward the next support level 126.50 (previous monthly low from May).
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#USDJPY broke support level 130.75
• Likely to fall support level 126.50
USDJPY under the bearish pressure after the earlier breakout of the support level 130.75 (which has been steadily reversing the pair from last May).
The breakout of the support level 130.75 coincided with the 50% Fibonacci correction of the previous downward impulse from December.
Given the continuation of yen gains, USDJPY can be expected to fall further toward the next support level 126.50 (previous monthly low from May).
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Japan’s inflation acceleration sets up a hawkish BoJ stance
Japan's Domestic Corporate Goods Price Index rose 0.5% m/m and 10.2% y/y in December after 0.8% m/m and 9.7% y/y. This is near the peak of 10.3% set in September. Despite lower commodity prices, prices are stubbornly reluctant to fall in Japan. And this is discouraging as more than one generation of economists has seen Japan as a prime example of deflation, citing demographics. We may continue to see a secondary effect of the yen weakening.
The Bank of Japan has halted the yen's weakening spiral by reversing about half of the losses since the start of 2021. Nevertheless, increased exchange rate volatility pushes sellers to impose higher margins on prices, which prolongs inflationary pressures and risks triggering the price-wage spiral that every central bank in the world fears.
Japan's Domestic Corporate Goods Price Index rose 0.5% m/m and 10.2% y/y in December after 0.8% m/m and 9.7% y/y. This is near the peak of 10.3% set in September. Despite lower commodity prices, prices are stubbornly reluctant to fall in Japan. And this is discouraging as more than one generation of economists has seen Japan as a prime example of deflation, citing demographics. We may continue to see a secondary effect of the yen weakening.
The Bank of Japan has halted the yen's weakening spiral by reversing about half of the losses since the start of 2021. Nevertheless, increased exchange rate volatility pushes sellers to impose higher margins on prices, which prolongs inflationary pressures and risks triggering the price-wage spiral that every central bank in the world fears.
With this kind of resilience in inflation, investors expect to see a tougher central bank stance. From that point of view, it is logical that the Bank of Japan has had to go out with record purchases of Japanese government bonds in recent days to keep their yields from rising.
However, rising government bond yields are increasing pressure on the budget. There are doubts about the sustainability of the Japanese finance ministry, given the country's massive national debt, chronic budget deficit and sluggish economic growth.
The BoJ remains the only central bank to maintain negative interest rates, probably out of fear of triggering unnecessary pressure on the economy. It is, therefore, with double interest that we should watch for the decisions and comments of the BoJ on Wednesday morning, where no options can be ruled out.
However, rising government bond yields are increasing pressure on the budget. There are doubts about the sustainability of the Japanese finance ministry, given the country's massive national debt, chronic budget deficit and sluggish economic growth.
The BoJ remains the only central bank to maintain negative interest rates, probably out of fear of triggering unnecessary pressure on the economy. It is, therefore, with double interest that we should watch for the decisions and comments of the BoJ on Wednesday morning, where no options can be ruled out.
We could see a decisive turnaround from the policy targeting government bond yields and even a key rate hike. If that is the case, the yen could continue to strengthen towards 120 before the end of the first quarter.
The opposite surprise cannot be ruled out when the central bank strengthens its negative rate policy and puts the yen back on a sustained downward path. This turnaround could be particularly dramatic for the currency as market prospects are now skewed towards an expectation of tighter policy, albeit less dramatically than we see in the USA or the Eurozone. In that case, the USDJPY might hit 133 very quickly and then aim for 140 before the end of March.
A dull scenario is also possible if the BoJ balances out its signals and does not cause market turbulence as it did at its last meeting in December. The inflation picture is pointing towards a policy-tightening option despite the risks of losses for the economy.
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The opposite surprise cannot be ruled out when the central bank strengthens its negative rate policy and puts the yen back on a sustained downward path. This turnaround could be particularly dramatic for the currency as market prospects are now skewed towards an expectation of tighter policy, albeit less dramatically than we see in the USA or the Eurozone. In that case, the USDJPY might hit 133 very quickly and then aim for 140 before the end of March.
A dull scenario is also possible if the BoJ balances out its signals and does not cause market turbulence as it did at its last meeting in December. The inflation picture is pointing towards a policy-tightening option despite the risks of losses for the economy.
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#WaveAnalysis
#Nikkei225 reversed from key support level 25695.00
• Likely to rise to resistance level 26500.00
Nikkei 225 index recently reversed up from the key support level 25695.00 (which has been repeatedly reversing this index from last May).
The upward reversal from the support level 25695.00 continues the active long-term upward impulse wave ③, which also previously started from the same support level.
Nikkei 225 index can be expected to rise further toward the next resistance level 26500.00 (which has been reversing the index from the end of December).
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#Nikkei225 reversed from key support level 25695.00
• Likely to rise to resistance level 26500.00
Nikkei 225 index recently reversed up from the key support level 25695.00 (which has been repeatedly reversing this index from last May).
The upward reversal from the support level 25695.00 continues the active long-term upward impulse wave ③, which also previously started from the same support level.
Nikkei 225 index can be expected to rise further toward the next resistance level 26500.00 (which has been reversing the index from the end of December).
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#WaveAnalysis
#NZDJPY reversed from key support level 81.35
• Likely to rise to resistance level 82.60
NZDJPY currency pair recently reversed up from the key support level 81.35 (which is the lower border of the wide sideways price range inside which the pair has been moving from September).
The support level 81.35 was further strengthened by the lower daily Bollinger Band.
Given the strength of the support level 81.35, NZDJPY can be expected to rise further toward the next resistance level 82.60 (former support level which stopped wave A at the end of last month).
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#NZDJPY reversed from key support level 81.35
• Likely to rise to resistance level 82.60
NZDJPY currency pair recently reversed up from the key support level 81.35 (which is the lower border of the wide sideways price range inside which the pair has been moving from September).
The support level 81.35 was further strengthened by the lower daily Bollinger Band.
Given the strength of the support level 81.35, NZDJPY can be expected to rise further toward the next resistance level 82.60 (former support level which stopped wave A at the end of last month).
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Bitcoin has slowed but is still looking higher
Bitcoin hit a high above $21.4K on Monday but pulled back to $21.0K – the area of the high since November – the rate is frozen, waiting for new signals.
It was apparent yesterday that the market needs a technical correction, or at least a consolidation around one level before it can continue rising after a 30% rally since the beginning of the year.
A technical correction might send the price to $20.2K or, more likely, $19.6K. The 200-day moving average and 61.8% Fibonacci level from the last rally pass near the latter level. A pullback to this area would be a typical correction. The emergence of new buyers will signal the end of the bearish trend in crypto. In the event of a more profound plunge, there is a high risk of a new disappointment of early buyers and an imminent return to a down-trend followed by lower lows.
According to CoinShares, investments in crypto funds rose by $9M last week, with small inflows following three weeks of withdrawals.
Bitcoin hit a high above $21.4K on Monday but pulled back to $21.0K – the area of the high since November – the rate is frozen, waiting for new signals.
It was apparent yesterday that the market needs a technical correction, or at least a consolidation around one level before it can continue rising after a 30% rally since the beginning of the year.
A technical correction might send the price to $20.2K or, more likely, $19.6K. The 200-day moving average and 61.8% Fibonacci level from the last rally pass near the latter level. A pullback to this area would be a typical correction. The emergence of new buyers will signal the end of the bearish trend in crypto. In the event of a more profound plunge, there is a high risk of a new disappointment of early buyers and an imminent return to a down-trend followed by lower lows.
According to CoinShares, investments in crypto funds rose by $9M last week, with small inflows following three weeks of withdrawals.
China smashed expectations for the economy, but that hasn't stopped the yuan's correction
An extensive package of statistics from China showed a much better economy than the average analysts had expected. But this set of economic surprises failed to affect the renminbi, which is falling for a second day, having lost 1.4% in the meantime.
China's economy grew by 3% last year (2.7% was expected). GDP was virtually unchanged for the fourth quarter, although a decline of 0.8% was expected, which is a considerable difference between expectation and fact.
The high-frequency data for retail trade and industrial production also exceeded expectations. The industrial production index in December was 1.3% higher than a year earlier. Since the start of the year, production has risen by 3.6%. Retail sales last month were 1.8% lower than a year earlier but were expected to fall by 9.5% y/y.
The unemployment rate fell from 5.7% to 5.5%, rejecting analysts' forecasts that it would remain unchanged.
An extensive package of statistics from China showed a much better economy than the average analysts had expected. But this set of economic surprises failed to affect the renminbi, which is falling for a second day, having lost 1.4% in the meantime.
China's economy grew by 3% last year (2.7% was expected). GDP was virtually unchanged for the fourth quarter, although a decline of 0.8% was expected, which is a considerable difference between expectation and fact.
The high-frequency data for retail trade and industrial production also exceeded expectations. The industrial production index in December was 1.3% higher than a year earlier. Since the start of the year, production has risen by 3.6%. Retail sales last month were 1.8% lower than a year earlier but were expected to fall by 9.5% y/y.
The unemployment rate fell from 5.7% to 5.5%, rejecting analysts' forecasts that it would remain unchanged.
Often such a divergence triggers an impulse to buy currencies on the back of capital inflows into domestic assets. But this time, the markets have quietly digested the difference, developing a second day of a technical rebound in the renminbi after the 9% rally from the beginning of November to the peak at the end of last week.
So far, the movement of the last two days has resembled a "buy the rumour, sell the news" style technical bounce, as investors ramped up their investments in the yuan late last year, betting on a turnaround to greater openness.
And this bet is working on several fronts across a broad spectrum of activity, from abandoning the 0-covid policy to easing for the technology sector. On top of that, we are seeing a softening of rhetoric from trade representatives and a pumping of liquidity into the financial system. Simply put, China has comprehensively taken up economic growth stimulus to regain some of the appeal for investors that it has been losing in several waves since 2018.
So far, the movement of the last two days has resembled a "buy the rumour, sell the news" style technical bounce, as investors ramped up their investments in the yuan late last year, betting on a turnaround to greater openness.
And this bet is working on several fronts across a broad spectrum of activity, from abandoning the 0-covid policy to easing for the technology sector. On top of that, we are seeing a softening of rhetoric from trade representatives and a pumping of liquidity into the financial system. Simply put, China has comprehensively taken up economic growth stimulus to regain some of the appeal for investors that it has been losing in several waves since 2018.
The USDCNH exchange rate is consolidating near the 50- and 200-week averages after collapsing from 7.35 to 6.71 in just over two months. The exchange rate reduced near these same levels from May to August 2022 and found support in early 2019. Therefore, another potentially prolonged stop here is a probable scenario.
A market shakeout could lift USDCNH to 6.86-6.90 before we see a new reversal to the downside. At the same time, this would remove the short-term overbought yuan on FX and provide some impetus to the economy through exports.
If China supports the economy and opens up to investors in the coming weeks, capital inflows into the renminbi could continue. In that case, the USDCNH could return to 6.25-6.35, where multi-year lows and the 161.8% Fibonacci level from the last rally of the Chinese currency are concentrated.
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A market shakeout could lift USDCNH to 6.86-6.90 before we see a new reversal to the downside. At the same time, this would remove the short-term overbought yuan on FX and provide some impetus to the economy through exports.
If China supports the economy and opens up to investors in the coming weeks, capital inflows into the renminbi could continue. In that case, the USDCNH could return to 6.25-6.35, where multi-year lows and the 161.8% Fibonacci level from the last rally of the Chinese currency are concentrated.
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UK Earnings rise alongside employment drop
The UK market is showing further signs of a reversal in the labour market towards a fall in employment, but the increased pace of wage growth is keeping a close eye on the Bank of England's actions and comments.
Jobless claims rose by 19.7k in December after climbing by 16.1k a month earlier, a logical development after a smooth stop to the decline earlier last year.
The unemployment rate remained at 3.7%. Here there is a 0.2 percentage point increase from the August lows, but these levels remain very low by historical standards. Unfortunately for policymakers, the low unemployment rate reflects a shrinking active workforce, which has forced the government to launch a programme of tax incentives for those back to work in the ages over 50.
The UK market is showing further signs of a reversal in the labour market towards a fall in employment, but the increased pace of wage growth is keeping a close eye on the Bank of England's actions and comments.
Jobless claims rose by 19.7k in December after climbing by 16.1k a month earlier, a logical development after a smooth stop to the decline earlier last year.
The unemployment rate remained at 3.7%. Here there is a 0.2 percentage point increase from the August lows, but these levels remain very low by historical standards. Unfortunately for policymakers, the low unemployment rate reflects a shrinking active workforce, which has forced the government to launch a programme of tax incentives for those back to work in the ages over 50.
In theory, this should increase supply and curb wage growth, which now looks like the most dangerous part of the inflationary spiral. Wages in the last three months to November were 6.4% higher than in the same period a year earlier. This is below current inflation. However, this high rate of wage growth risks is the most significant factor in anchoring inflation expectations and overall inflationary pressure.
A fresh set of inflation data is published tomorrow morning, where a sharp fall in prices is not forecast on average. The combination of high consumer inflation and rising wages could force the Bank of England to push the economy harder into recession to suppress consumption and bring price growth under control, which would be positive for the pound.
A fresh set of inflation data is published tomorrow morning, where a sharp fall in prices is not forecast on average. The combination of high consumer inflation and rising wages could force the Bank of England to push the economy harder into recession to suppress consumption and bring price growth under control, which would be positive for the pound.
#WaveAnalysis
#EURCAD reversed from key resistance level 1.4585
• Likely to fall to support level 1.4400
EURCAD recently reversed down from the key resistance level 1.4585 (which has been repeatedly reversing the pair from the end of 2021 as can be seen below).
The downward reversal from the resistance level 1.4585 continues the active weekly downtrend from the start of 2020.
Given the overbought reading on both the daily and the weekly Stochastic indicators, EURCAD can be expected to fall further toward the next support level 1.4400.
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#EURCAD reversed from key resistance level 1.4585
• Likely to fall to support level 1.4400
EURCAD recently reversed down from the key resistance level 1.4585 (which has been repeatedly reversing the pair from the end of 2021 as can be seen below).
The downward reversal from the resistance level 1.4585 continues the active weekly downtrend from the start of 2020.
Given the overbought reading on both the daily and the weekly Stochastic indicators, EURCAD can be expected to fall further toward the next support level 1.4400.
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