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Round Up – Dollar Weakness & Chinese Growth

James Boston
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A reported surge in Chinese lending has substantially buoyed global markets in the last few hours. Data for January lending in the worlds second largest economy showed loan activity to be at its highest level in almost 4 years. Investors welcomed the upbeat news out of China and interpreted it as a sign that talk of a substantial slow down may be overrated.

Global stock markets, as measured by the MSCI All-Country World Index, rose to the highest level in over 3 weeks. Anticipation of increased demand for raw materials in China pushed commodities and commodity currencies higher, Copper gained 0.6% while Gold added a half percent and the Aussie dollar hit its highest level since mid-December.

US Markets are shut today for the Presidents day holiday, this is preventing buying on the US stock and bond markets which in turn is limiting support for the US Dollar. Currently languishing at a six week low, the Dollar is still suffering from Friday’s unexpectedly bad manufacturing data.

The weakness in the Dollar is presenting an opportunity for the major European crosses to finally make the headway they have been poised for over the past couple of months.
EUR/USD is teetering at the 1.37 level, a key resistance point in the run up to the long term high of 1.3803, while this pair is currently indicating clear direction and the intention to move higher, the 1.37 resistance is proving to be more formidable than anticipated, when it finally gives it is likely that we see a considerable run on towards the high 1.37s.

GBP/USD is likewise attempting to sustain a topside breakout. Briefly overnight this pair traded above the key 1.68 level, posting a new 4 year high of 1.6818 before making a hasty retreat back into the mid 1.67s. Nerves ahead of tomorrow morning’s British inflation report are holding back Sterling’s progress, however the report itself may well be the catalyst we are awaiting for a sustainable move higher.

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