China data in focus

It has been a quiet start to the week so far in the FX space, with limited moves in the major currency pairs. 

It’s certainly the calm before the storm as we have a data dump from China today. The headline will be the Q4 GDP reading which is expected at 7.6%, slightly softer than 7.8% the previous year. This will leave the full year at 7.7%. Out of China we also have fixed asset investment, industrial production and retail sales. Industrial production and retail sales are expected to remain strong. IP expected up 9.8% and retail sales up 13.6%. Later in the week, we have the HSBC manufacturing PMI out of China which is expected to remain comfortably in expansionary territory.

AUD/USD consolidating ahead of the data

AUD/USD remains below 0.88 and is likely to remain relatively sidelined ahead of China data. The data is out at 1pm AEDT and perhaps could finally help the pair bounce off three-year lows. We are currently trading at around 0.876 and a better-than-expected print could see the pair trade back towards previous support in the 0.8850 region. That’s where I would be looking for resistance and perhaps closer to 0.89 would encourage fresh selling. CPI data could be the trigger of fresh selling as it is likely to remain benign given the weaker economic trends especially jobs being lost.

BoJ to drive yen

The other major currency pair I’m watching this week will be USD/JPY given we have the BoJ meeting and as well we are fast approaching this month’s Fed meeting where we could potentially see tapering accelerate. The BoJ’s bias ahead of the sales tax hike increase in April will be key for the yen this week. USD/JPY is testing 104 early in Asia with some mild USD selling taking place as risk is offered ahead of China data. However, buying dips in the pair is the strategy that’s been working for a while now and I suspect and further pullback, especially into 103, will be used as an opportunity to accumulate. Given there aren’t many BoJ meetings left before the sales tax hike kicks in then speculation will be rife the BoJ might look to act before April. Any language suggesting that could result in some big moves in the yen crosses.

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