Two trades to watch: FTSE, EUR/USD
Fiona Cincotta January 17, 2023 7:55 AM
FTSE falls after weak Chinese growth & as UK wages rise. EUR/USD looks to German ZEW economic sentiment data.
FTSE falls after weak Chinese growth & as UK wages rise
The FTSE is falling, paring gains from the previous session after weak Chinese growth and UK jobs data points to more rate hikes from the BoE.
China’s economy grew 2.9% in Q4 annually, marking the second slowest pace of growth in 50 years, highlighting the impact of the country’s zero-Covid policy. This was down from growth of 3.9% in Q3 but was ahead of forecasts of 1.8%.
Retail sales also fell -1.8%, but this was less than the -8.6% forecast and an improvement on November’s -5.9%.
While the economy is expected to rebound this year, the data underscore the extent of the challenge.
With regard to UK domestic data, UK unemployment held steady at 3.7%, while the number of benefits claimants only rose moderately, pointing to strength in the labour market. Wages excluding bonuses continued to power higher, rising 6.4%, up from 6.1%. This was ahead of the 6.3% forecast.
The data suggests that the BoE has room to continue hiking interest rates. In fact, with such strong wage growth, policymakers are likely to be nervous of a higher wage spiral and inflation becoming entrenched.
The data comes following comments by BoE Governor Andrew Bailey yesterday, who said that the shortage of workers in the UK could pose a major risk to the cost of living crisis.
Where next for the FTSE?
The FTSE rose to a 4.5-year high of 7870 yesterday and continues to hold above 7850 today. The index trades well above its 50, 100 & 200 sma on the weekly chart and the RSI supports further upside. Although, on the daily chart, it has pushed into overbought territory.
Buyers could look for a rise over 7870, yesterday’s high, to attack 7900 and push ahead to an all-time high.
Support can be seen at 7790, the August high ahead of 7670. A break below here could negate the near-term uptrend.
EUR/USD looks to German ZEW economic sentiment data
EUR/USD rose to a 9-month high yesterday and continues holds above 1.08 today, finding support from falling gas prices and easing recession fears. European gas prices fell 16% yesterday as ample gas supplies overshadowed a brief cold spell. Concerns that an energy crunch could cause the European economy to collapse have given way to hope that inflation will continue falling.
German inflation data, the final reading for December, confirmed that consumer prices slipped to 8.6% YoY last month.
Attention will now turn to German ZEW economic sentiment data, which is forecast to improve again in January after reaching its highest level since the start of the Russian war last month. The ZEW German economic sentiment is forecast to rise to -15, up from -23.3.
Improving sentiment could point to a shallower recession in the eurozone’s largest economy.
The USD is rising amid a cautious market mood after China growth data showed that the economy grew in Q4 at the second slowest pace since the 1970’s.
There is no high impacting US economic data. Attention will be on Federal Reserve speakers ahead of US PPI inflation data tomorrow.
Where next for EUR/USD?
EUR/USD has extended its run-up above 1.08. The 50 sma has crossed above the 100 & 200 sma in a bullish signal, and the RSI supports further upside while it remains out of overbought territory.
Buyers could look for a rise over 1.0875, yesterday’s 9-month high, to open the door to 1.0935 the April high. Beyond here, 1.10, the psychological level could come into focus.
Om the downside, immediate support can be seen at 1.0790, the June high, ahead of 1.0735 the December high. A break below here could see a test of the rising trendline support at 1.0615.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.