Two trades to watch: FTSE, EUR/USD

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.