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Commodity Currencies Continue Climb on Curious Chinese Trade Data

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ASIA/EUROPE FOREX NEWS WRAP

The commodity dollar bloc is outperforming for the second day in a row this week, as Chinese trade data from March showed a much greater than expected increase in exports, suggesting that the world’s second largest economy is seeing increased activity with its major regional trading partners like Australia and New Zealand. And while the rally seen by the commodity currencies, in this context, makes perfect sense, a breakdown of the actual trade figures raises more questions than it answers.

The Chinese Trade Balance for March came in at a -$880M deficit, well-below the $15.15B surplus forecasted, as Imports rose by +14.1% y/y versus +6.0% y/y expected, and Exports disappointed at +10.0% y/y versus +11.7% expected. Why? Exports fell to China’s major trading partners, including the Euro-zone and the United States, where the declines ranged from -7% y/y to -15% y/y. This is a clear signal that export-driven growth is unlikely to take hold in China this year, as slow recovery in the US and the worst recession in four years grips Europe.

But the data came across as very questionable, on the small peculiarity that exports to Hong Kong were up by +93.0% y/y in March. Like mainland China, Hong Kong exports a significant portion of its goods/services to Western developed nations; in context of the declining Chinese export figures to the Euro-zone and the United States, either Hong Kong had a truly historic month of consumption, or rather, the March Chinese trade figures are entirely distorted.

Taking a look at European credit, lower peripheral yields on the back of the news that Ireland and Portugal could receive 7-year extensions to repay their bailouts has helped prop up the Euro, if only slightly on Wednesday. The Italian 2-year note yield has decreased to 1.431% (-4.4-bps) while the Spanish 2-year note yield has decreased to 2.058% (-0.8-bps). Likewise, the Italian 10-year note yield has decreased to 4.328% (-1.4-bps) while the Spanish 10-year note yield has decreased to 4.634% (-6.1-bps); lower yields imply higher prices.

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RELATIVE PERFORMANCE (versus USD): 10:50 GMT

AUD: +0.34%

NZD: +0.30%

CAD: +0.20%

CHF:+0.19%

EUR:+0.11%

GBP:-0.07%

JPY:-0.43%

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.01% (+0.45%past 5-days)

ECONOMIC CALENDAR

Commodity_Currencies_Continue_Climb_on_Curious_Chinese_Trade_Data_body_Picture_7.png, Commodity Currencies Continue Climb on Curious Chinese Trade Data

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TECHNICAL ANALYSIS OUTLOOK

Commodity_Currencies_Continue_Climb_on_Curious_Chinese_Trade_Data_body_Picture_6.png, Commodity Currencies Continue Climb on Curious Chinese Trade Data

EURUSD: The Bullish Falling Wedge off of the February 1 and March 25 highs broke out positively last week, rooted in ECB President Draghi’s comments that there is “no plan B” for the Euro. Now, the EURUSD is retesting the 38.2% Fibonacci retracement from the Jul’12 low to the Feb’13 high at 1.3075, perhaps presenting a moment for the rally to breathe. Declines should be supported by 1.2950/60, the confluence of the 8-/21-EMAs (which are close to showing a bullish crossover). A close above said level today opens the door for a run towards 1.3160, the post-Italian election swing high.

Commodity_Currencies_Continue_Climb_on_Curious_Chinese_Trade_Data_body_Picture_5.png, Commodity Currencies Continue Climb on Curious Chinese Trade Data

USDJPY: After the USDJPY cleared the descending trendline off of the March 12 and March 20 highs, at 95.00/15, price sky rocketed right up to the topside rail at 99.30/55. This is the same channel resistance that proved to be the top in mid-February and early-March. While topside risks are still in play, with the psychologically significant ¥100.00 figure eyed, sideways price action or a move to fill the week’s opening gap are possible. Accordingly, dips into 97.50 and 96.60 are look to be bought on pullbacks.

Commodity_Currencies_Continue_Climb_on_Curious_Chinese_Trade_Data_body_Picture_4.png, Commodity Currencies Continue Climb on Curious Chinese Trade Data

GBPUSD: Last week I said: “The failed run up to the 1.5285/375 region suggests that the rally in the GBPUSD seen the past few weeks may be nothing more than short covering and asset reallocation, rather than traders taking up new positions amid an improved interest rate outlook for the UK.” While the Bearish Rising Wedge move proved to be a fake out, an upward sloping channel has materialized off of the early-March lows. Recent price action from last Thursday suggests a pennant may have formed on the 1H and 4H time frames, with a test of 1.5440 due by Monday. I remain long-term bearish, but for now, I am neutral.

Commodity_Currencies_Continue_Climb_on_Curious_Chinese_Trade_Data_body_Picture_3.png, Commodity Currencies Continue Climb on Curious Chinese Trade Data

AUDUSD: After several failed tests of 1.0475/500, the AUDUSD has broken through today to test the topside limit of the 1.0475/535 zone, in which the descending trendline off of the July 2011 and January 2013 highs lays alongside several key Fibonacci extensions rooted in the rally from the March 4 low. With retail traders fading the AUDUSD’s advance, a break of this key region to the topside is probable, with a clean test of 1.0580/600 in sight. A weekly close above said level could open the door for a move towards 1.0850 in the 2Q’13.

Commodity_Currencies_Continue_Climb_on_Curious_Chinese_Trade_Data_body_Picture_2.png, Commodity Currencies Continue Climb on Curious Chinese Trade Data

SP 500: This is not a ‘technically strong move. The float higher continues, towards the all-time high at 1576.1, but might be cut short in the 1565/75 zone, where two key Fibonacci extensions lay. Accordingly, the recent pushes up towards this all-time high have seen repeated denials, and conviction certainly appears to be waning. Between the weak March labor market report, the growing impact of the US budget sequestration on the real economy, and an increased number of Fed policymakers calling for an end to QE3 later in 2013, I remain very skeptical.

Commodity_Currencies_Continue_Climb_on_Curious_Chinese_Trade_Data_body_Picture_1.png, Commodity Currencies Continue Climb on Curious Chinese Trade Data

GOLD: No change: “Gold broke below trendline support off of the January 2011 and May 2012 lows at 1650 last week, prompting a sharp sell-off into 1600, where price broke out in mid-August before a rally into the post-QE3 high at 1785/1805. However, with oversold conditions persisting on the 4H and daily timeframes, a rebound should not be ruled out; each of the past two daily RSI oversold readings has produced a rally in short order. Resistance is 1625 and 1645/50. Support is 1585 and 1555/60. It should be noted that Gold has entered a major support zone from the past 18-months from 1520 to 1575.”

— Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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Analys från DailyFX

EURUSD Weekly Technical Analysis: New Month, More Weakness

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What’s inside:

  • EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
  • Resistance in vicinity of 11825/80 likely to keep a lid on further strength
  • Targeting the low to mid-11600s with more selling

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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.

Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.

Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).

Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.

For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.

EURUSD: Daily

EURUSD Weekly Technical Analysis: New Month, More Weakness

—Written by Paul Robinson, Market Analyst

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You can follow Paul on Twitter at@PaulRobinonFX.

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Euro Bias Mixed Heading into October, Q4’17

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Euro Bias Mixed Heading into October, Q4'17

Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.

EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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British Pound Reversal Potential Persists Heading into New Quarter

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British Pound Reversal Potential Persists Heading into New Quarter

Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.

GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, please fill out this form

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