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Soft China CPI boost stock markets, USD consolidates post-NFP

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The USD made a soft start to the week amid Friday’s job report failed to boost Fed hawks. The US economy added 214K new nonfarm jobs (vs. 235K expected, September figures were revised up from 248K to 256K). The unemployment rate improved from 5.9% to 5.8% for a slightly better participation rate of 62.8% (vs 62.7% last). The average earnings remained soft, in line with expectations. The US 10-year yields remained capped at 2.40%, the DXY index made a comeback from 88.190, fresh four year high. All G10 and EM currencies traded higher at first trading hours of the week. We have light US data flow this week, traders will monitor retail sales on Friday. We expect consolidation in USD.

In Australia, home loans retraced by 0.7% on month to September, investment lending expanded by 3.7%, the owner-occupied home value increased by 1.4%. AUDUSD remained capped at 0.8683 on soft Chinese data. The PM Abbott said AUD is at “more comfortable” levels after the recent fall and added that “the iron ore prices can go down, it can go up as well shouldn’t assume the price is stuck at $75 a ton”. The iron core delivered to China is heading towards $75 for the first time since 2009 amid largest weekly decline in five months over the last week. Deflationary fears in commodity markets should keep the pressures tight on AUD.

China’s trade surplus increased from 30.94 to 45.41 billion dollars in October, yet exports grew at slower pace of 11.6% on year to October (vs. 15.3% a month ago), the CPI remained unchanged at 1.6%, the PPI decelerated at faster pace of 2.2% (vs -2.0% exp. & -1.8% last) mostly due to falling oil prices. Data boosted dovish bets especially after the PBoC confirmed liquidity injection in 3Q in a report released last week. The Chinese stocks kick-started the week (Hang Seng +1.40, Shanghai’s Composite +2.30%), USDCNY trades range-bound with offers trailing below 6.1250/6.1264 (optionality / Fib 38.2% on January-April rally). Bids abound at 6.10+.

USD/JPY opened at 114.52 and legged down to 113.87 on expectations that the PM Abe would proceed with the second round of sales tax hike in 2015. We see resistance at 114.90/115.00 (30d upper Bollinger band / psychological level), large vanilla bids dominate above 115.00 for today expiry.

EUR/USD consolidates post-Draghi losses below 1.2500 this Monday. Trend and momentum indicators are comfortably bearish, option barriers sit at 1.2475/1.2500/1.2550 for today expiry. Support zone has shifted to 1.2358/1.2415 (post-Draghi reaction low / 30-day lower Bollinger band). EURGBP offers remain solid at 0.7885/0.7925 (21&50-dma & option barriers).

The economic calendar of the day: Norwegian October CPI and PPI m/m & y/y, Italian September Industrial Production m/m & y/y, Canadian October Housing Starts, US October Labor Market Conditions Index.

Quotes:

Peter Rosenstreich – Head of Market Strategy:

“With major central banks still pushing to keep liquidity loose through balance sheet expansions, risky assets should remained buoyant in the near term. Yes, global growth faces challenges, as the US and China, both engine of expansion, face headwinds. Yet there is growth and despite warnings of geopolitical risk derailing the fragile recovery, this has not occurred. USD and US asset will remain in demand but don’t expected high-beta currencies to collapse. Investors are yield starved and will increasingly take an extra risk for a speck of return. In addition, should the US and UK backtrack from the urgency of tighten we could see a sudden reversal of capital flow back the much maligned EM FX segment.” “In addition, in China, reports over the weekend showed solid export growth at 11.6% in October, illustrating that the negative sentiment around Chinese growth could change."

Ipek Ozkardeskaya – Market Analyst:

“Soft Chinese CPI and PPI, combined to developing bear market in oil clearly hints at more easing from the PBoC. The PBoC has no reason to refrain from more liquidity injection given its macro fundamental situation. The USDCNY trades soft above 6.10 support, we expect a bounce back toward 6.15 (Fib 50% on January – April rally) as the divergence between Fed/PBoC deepens.”

Luc Luyet, CIIA – Senior Market Analyst:

“Gold rose sharply on 7 November. Given the recent overextended decline, a short-term rebound seems likely. However, the longer term technical picture continues to favour further weakness towards the May 2010 low at $1045. Resistances to monitor for a resumption of the underlying decline can likely be found at $1194 (50% retracement of the October-November decline) and $1217 (30/10/2014 high).”

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