EM Rundown: China China China China…China!

<p>After last week’s major economic data in the developed world, including the highly-anticipated ECB meeting and US Non-Farm Payroll report, some traders may shift their […]</p>

After last week’s major economic data in the developed world, including the highly-anticipated ECB meeting and US Non-Farm Payroll report, some traders may shift their focus back to emerging markets this week, where by far the biggest star (as always) will be China.

Tomorrow (technically later tonight in the US), China will release its trade balance data for November. While traders forecast that the net trade balance (exports minus imports) will tick higher to 395B yuan, both imports and exports are expected to fall further, reflecting a generally slowing economy.

The following day, traders will get their first look at November’s inflation figures (01:30 GMT); in what’s become a gaping chasm of a divergence, consumer prices (CPI) are expected to tick higher by 1.3% y/y while producer prices (PPI) are actually expected to fall by 5.9% y/y.Regardless of which measure you look at, price pressures in the world’s second-largest economy are essentially non-existent, potentially making the case for easing from the PBOC.

Rounding out this week’s major Chinese data will be the monthly releases of Industril Production, Fixed Asset Investment, and Retail Sales figures on Saturday. Despite policymakers’ best efforts, China remains primarily a manufacturing-based economy, so the Industrial Production figure will be the most closely watched release. Last month Industrial Production hit its lowest rate since the Great Financial Crisis at 5.6% year-over-year and another subdued 5.7% reading is expected this weekend.

Technical view: USD/CNH

This is usually where we’d insert our standard disclaimer that China’s currency is not free-floating, so technical analysis tends to be less effective, but the country also decided to shift its exchange rate policy to a more market-determined rate in August, so those concerns are fading, especially now that the renminbi is part of the IMF’s SDR basket.

The SDR-acceptance rally was extremely short-lived and USD/CNH has now resumed its near-term uptrend to hit a new three-month high as at 6.47 as we go to press. Meanwhile, the MACD indicator continues to trend higher above both its signal line and the “0” level, showing strong and growing bullish momentum. From a technical perspective, the pair may have room for further upside toward the 61.8% Fibonacci retracement around 6.49 or even the 78.6% Fibo at 6.53 if this week’s data disappoints. Only a break below the bullish channel would call this near-term bullish bias into question.

USDCNHDAILY12-7-2015 2-26-00 PM

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.