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There are two main events this week, the EU Summit at the end of the week and the release of Chinese data all week long This morning and during the weekend, the eco data from China where not that bad, with especially the trade balance (exports) stronger than expected. However, once again, this is not enough for markets to turn more positive on risk. The EUR/USD is feeling the heat, too as the pair dropped around half a big figure in Asia this morning.
Chinese consumer price index eased in September in line with expectations, while a gauge of producer prices showed a steepening drop, evidence that China’s economy has yet to stabilize, according to one economist. The CPI rose 1.9% in September from the year-earlier month, easing from 2% for August, according to data released Monday by the National Bureau of Statistics. The consumer-price gain matched expectations of economists surveyed in a poll by Dow Jones Newswires.
China has the policy room to support economic growth by adopting both fiscal and monetary measures, the People's Bank of China vice Governor Yi Gang said in an interview with the state-run Financial News.
Unlike other countries that are burdened with high fiscal deficits or have already implemented a zero interest rate policy, China is well positioned to adopt both fiscal and monetary policies to support economic growth, Mr. Yi said, according to the newspaper on Monday.
The National Bureau of Statistics is scheduled to release third-quarter gross domestic product data on Thursday. This release has the potential of moving all currencies.
Events today are light; the calendar in Europe remains thin, with only some second tier eco data on the agenda. There will always be headlines on Spain, but we assume that markets have come the conclusion that there will be no Spanish aid request in the very near future. This might cap the topside in EUR/USD, especially as long as sentiment on risk remains cautious, too. In the US, the calendar is much more interesting with the retail sales and the Empire State manufacturing index. The retail sales have market moving potential. The consensus expects decent sales growth in August and we also expect a strong report, maybe even stronger than expected report. The question is whether a good retail sales report will convince investors to leave the cautious attitude that was seen late last week and early this morning. Looking at the price action after the strong Michigan consumer confidence, it is not sure that a strong figure will trigger the usual risk-on reaction in global markets and in the EUR/USD.
Aside from the macro news, markets will also keep a close eye on earnings, with Citigroup reporting earnings before the open of the markets. The reaction to the results of JP Morgan and Wells Fargo suggests that markets are not really forgiving and that any negative surprise might be punished. Further down the road, we look especially at to the results from industrial companies and to their forecasts for the near future. At least for now, we have the impression that the glass is still half full rather than half empty, but even this attitude can change during the earnings season.
In conclusion, sentiment on risk is fragile/cautious. This is due to uncertainty on Spain, but also due to uncertainty on global growth. This sentiment is weighing on the euro, but for now the barriers of the 1.28/1.31 consolidation pattern are no yet challenged. The Oct 01 correction low at 1.2804 remains the first point of reference. For now, we don’t expected sustained trading below this level.
Traders need to be careful of rumors, press conferences, interviews and statements from the EU Finance Ministers, as they all like to get their own agenda across and also all like to see their names in print. The EUR/USD can become very reactionary to these releases.